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Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities....

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Zeon, a large profitable corporation, is considering adding some automatic equipment in its production facilities. An investment of $100,000 will produce an initial annual benefit of $41,500, but the benefits are expected to decline $1,000 per year. The firm uses SOYD depreciation, a 4 year useful life and $14,000 salvage value. Assume that the equipment can be sold for its $14,000 salvage value at the end of 4 years. Also assume a 46% income tax rate for state and federal taxes combined. The following After-Tax Cash Flow Table has been prepared. Before-Tax SOYD Depreciation Income Taxes Taxable income at 46% After-Tax Cash Flow Year Cash Flow o - 100,000 - 100,000 1 41,500 21,500 20,000 9,200 32,300 2 40,500 21,500 19,000 8,740 31,760 3 39,500 21,500 18,000 8,280 31,220 4 52,500 21,500 31,000 14,260 38,240 Is it correct? If not, why not? It is correct. O It is incorrect. Wrong depreciation used. O It is incorrect. The money made when the equipment is sold in not included in the last year's cash flow. It is incorrect. The after-tax cash flow is wrong

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