Income Tax Considerations in Capital Budgeting
Response to the following problem:
The company has decided to invest in new factory machinery that will decrease labor costs by $50,000 per year. The new machinery will cost the company $200,000 and has an expected salvage value of $20,000 after nine years. The corporate tax rate is 35%, and the company's discount rate is 12%. Compute the NPV of this investment. Should the company go ahead with the investment?