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The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools.

The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools and a 39% combined income tax rate.

(a) What is the after-tax payback period for this investment?

(b) If the company wants a 12% after-tax rate of return, is the desirable investment?

NOTE: Please Use a net tax rate of 22.98% for the problem (disregard the rate given in the problem)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92847944

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