Suppose a Manager of a Firm Is Considering Investing in a Piece

Multiple Choice

Suppose a manager of a firm is considering investing in a piece of equipment that will generate $20,000 in future operating profit each year for the next three years. The discount rate is 5 percent and the salvage value of zero. The equipment's current cost is $50,000 and this cost will be financed by the firm. If the tax rate on the firm's profit is 4 percent each year, what is the net present value of the equipment?

A) - $2,581
B) $2,286
C) $3,569
D) $4,464