Question

wonky electronics (we) is reviewing the following data relating to a new equipment proposal: net initial investment outlay $ 48,000 after-tax cash inflow from disposal of the asset after 5 years $ 14,000 present value of an annuity of $1 at 12% for 5 years 3.605 present value of $1 at 12% in 5 years 0.567 we expects the net after-tax savings in cash outflows from the investment to be equal in each of the 5 years. what is the minimum amount of after-tax annual savings (including depreciation effects) needed to make the investment yield a 12% return (rounded to the nearest whole dollar)? multiple choice $7,005. $9,927. $11,113. $12,705. $14,494. prevquestion 9 of 10 total9 of 10visit question mapnext

Answer 1

The minimum amount of after-tax annual savings needed to make the investment yield a 12% return is $17,166.

Step-by-step explanation:

To calculate the minimum amount of after-tax annual savings needed to make the investment yield a 12% return, we need to consider the net initial investment outlay, after-tax cash inflow from disposal of the asset, present value of an annuity, and present value of $1. Using these data, we can set up an equation as follows:

Net initial investment outlay - (Annual after-tax savings x Present value of annuity) + After-tax cash inflow from disposal of the asset = 0

Plugging in the given values, we get:

48000 - (Annual after-tax savings x 3.605) + 14000 = 0

Simplifying the equation:

(Annual after-tax savings x 3.605) = 62000

So, the minimum amount of after-tax annual savings needed to make the investment yield a 12% return is $17,166 (rounded to the nearest whole dollar).