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 $36,500, but the benefits are expected to decline $4,000 per year. The firm uses SOYD depreciation, a 4 year useful life and $10,000 salvage value. Assume that the equipment can be sold for its $10,000 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 Taxable Income Taxes After-Tax Year Cash Flow Depreciation Income at 46% Cash Flow - 100,000 - 100.000 36,500 36,000 500 230 36,270 2 32,500 27,000 5,500 2,530 29.970 28,500 18,000 10,500 4,830 23,670 4 24,500 9,000 15,500 17,130 17,370 Is it correct? If not, why not? It is correct. It is incorrect. Wrong depreciation used. 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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