Adams Company is evaluating a new tractor that costs $1,350,000 to replace the tractor purchased years earlier, which currently has no salvage value; the new tractor has an estimated useful life of five years with no disposal value or anticipated cost of disposal. The company uses straight-line depreciation with no residual value on all equipment. Adams is subject to a 40% income tax rate. The company uses a 12% hurdle rate for evaluating capital investment projects. The PV of an annuity of $1 at 12% for 5 years is 3.605, and the PV of $1 at 12% in 5 years is 0.567.

Compute the amount of before-tax savings that must be generated by the new tractor to have a payback period of no more than 3 years.

Compute the amount of before-tax savings that must be generated by the new tractor to have a NPV of at least $500,000 at a desired rate of return of 12%.

Compute the amount of before-tax savings that must be generated by the new tractor to have an IRR of 12%.

#### Top Answer

Dear Student, Please find... View the full answer

## This question was asked on Feb 08, 2011 and answered on Feb 11, 2011.

### Recently Asked Questions

- Your stock investments return 8%, 12%, and -4% in consecutive years. The geometric return is 5.06%. What is the sample standard deviation of the returns? A.

- A textile manufacturer is closing its North Carolina plant and moving the production of its products to a developing nation in Southeast Asia. The primary

- Write an essay of 1,000-1,250 words that analyzes the Five Pillars of Islam. Describe each of the five pillars and reflect on why they are referred to as