Charlotte Computer Services Is Considering Purchasing Equipment at $100 000

Charlotte Computer Services is considering purchasing equipment at $100 000. It is anticipated the equipment will have a useful life of five years. It will be depreciated on a straight-line basis. Operating revenue is expected to be $74 000 per annum and operating expenses $25 000 per annum. The equipment is subject to an investment allowance of 10 per cent and the tax rate is 30 per cent. The after-tax hurdle rate is 12 per cent. What is the net present value of the investment?

A) $45 282
B) $7545
C) $70 825
D) $48 282

Correct Answer:

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