Problemon january 1 mojo company purchased a new machine, Ask an Expert

Accounting

Problem:

On January 1, Mojo Company purchased a new machine for $100,000 to be depreciated over 5 years. It will have no salvage value at the end of its useful life. For both book and tax purposes, depreciation will be $20,000 per year. The machine is expected to produce annual cash inflows from operations, before income taxes, of $40,000. Assume that Mojo uses a discount rate of 12% and that its income tax rate will be 40% for all years. The present value of $1 at 12% for five periods is 0.57, and the present value of an ordinary annuity of $1 at 12% for five periods is 3.61. The NPV of the machine should be?

A. $15,520 positive

B. $15,520 negative

C. $14,000 positive

D. 413,680 negative

Note: Please show the work not just the answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164404

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