A project will require the investment of $108,000 in equipment (straight-line depreciation with a depreciable life of 8 years and zero salvage value) and $25,000 in raw materials (not depreciable). Net annual project income before-tax depreciation will be $24,000. At the end of 8 years the project will be discontinued and the $25,000 investment in raw materials will be recovered.
Assume a 34% combined income tax rate for this firm. The firm wants a 15% after-tax rate of return. Determine by present worth analysis whether this project should be undertaken.
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