The Hobbit Company Ltd is considering replacing the equipment it uses to produce tents. The equipment would cost $1.4 million and lower…

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September 17, 2020
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September 17, 2020

18. The Hobbit Company Ltd is considering replacing the equipment it uses to produce tents. The equipment would cost $1.4 million and lower manufacturing costs by an estimated $215,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The life of the equipment is 8 years. The required rate of return is 13% and the tax rate is 34%. What is the net profit after tax from this proposed project?

Select one:

A. $13,600

B. $26,400 Correct

C. $32,400

D. $40,000

E. $53,600

How to calculate the right answer?

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