Pierce Products Is Deciding Whether It Makes Sense to Purchase

Multiple Choice

Pierce Products is deciding whether it makes sense to purchase a new piece of equipment. The equipment costs $100,000 (payable at t = 0) t = 1: 0.33 t = 2: 0.45
T = 3: 0.15
T = 4: 0.07
At the end of four years the company expects to be able to sell the equipment for a salvage value of $10,000 (after-tax) . The company is in the 40 percent tax bracket. The company has an after-tax cost of capital of 11 percent. Since there is more uncertainty about the salvage value, the company has chosen to discount the salvage value at 12 percent. What is the net present value of purchasing the equipment?

A) $ 9,140.78
B) $16,498.72
C) $20,564.23
D) $22,853.90
E) $28.982.64