Laramie Corporation Is Considering an Investment in Equipment for $20,000

Multiple Choice

Laramie Corporation is considering an investment in equipment for $20,000. Laramie uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent, and the life of the equipment is five years with no salvage value. The expected income before depreciation and taxes is projected to be $10,000 per year. The cost of capital is 20 percent. What is the net present value of the investment?

A) $(1,366)
B) $2,732
C) $22,991
D) $22,000