Minimum pretax earnings, XYZ Company is planning to acquire a machine which will cost

Minimum pretax earnings

XYZ Company is planning to acquire a machine which will cost $200,000, that will last for 4 years. The company employs straight-line depreciation. The tax rate of XYZ is 35% and the proper discount rate in this situation is 12%.

(A) Determine the minimum pretax earnings per year which the machine should generate to become gainful.

(B) XYZ Company predicts that the machine will contain $70,000 pretax earnings annually, with a standard deviation of $10,000. Compute the probability that the machine will be profitable.

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