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Effects of straight-line versus accelerated depreciation on an investment decision Zito Electronics is considering investing in manufacturing...

Effects of straight-line versus accelerated depreciation on an investment decision Zito Electronics is considering investing in manufacturing equipment expected to cost $184,000. The equipment has an estimated useful life of four years and a salvage value of $24,000. It is expected to produce incremental cash revenues of $96,000 per year. Zito has an effective income tax rate of 30 percent and a desired rate of return of 12 percent.
Required
a. Determine the net present value and the present value index of the investment, assuming that Zito uses straight-line depreciation for financial and income tax reporting.
b. Determine the net present value and the present value index of the investment, assuming that Zito uses double-declining-balance depreciation for financial and income tax reporting.
c. Why do the net present values computed in Requirements α and b differ?
d. Determine the payback period and unadjusted rate of return (use average investment), assuming that Zito uses straight-line depreciation.
e. Determine the payback period and unadjusted rate of return (use average investment), assuming that Zito uses double-declining-balance depreciation. (Note: Use average annual cash flow when computing the payback period and average annual income when determining the unadjusted rate of return.)
f. Why are there no differences in the payback periods or unadjusted rates of return computed in Requirements d and e?

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Dear Student, Please... View the full answer

8413859.xlsx

Part 1 Equipment cost
useful Life =
Salvage Value =
Incremental Cash Flows =
Tax Rate =
Required rate = $184,000.00
4 years
$24,000.00
$96,000.00
30%
12% Year
Cost of Equipment
Cash revenues
Less...

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