Juicy Co is considering investing in a new industrial juicer for use on a new contract. It will cost $150,000
and will last 2 years. Juicy Co pays corporation tax at 30% (as the cash flows occur) and, due to the health
benefits of juicing, the machine attracts 100% tax-allowable depreciation immediately.
Given a cost of capital of 10%, what is the minimum value of the pre-tax contract revenue receivable in two years which would be required to recover the net cost of the juicer?
I am really confused how the calculations have been performed in it.
I understood with the initial outlay of 150000-45000=105,000
then in FV for 2 years we got 127,050 , then why have they again deducted the tax amount from it ? and how have they done it .because the amount 105k itself is deducted after tax so what's the need of doing it again ?
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Tax
5y ago#1The $105,000 is simply that after tax initial outlet.
The question asks for the minimum pre-tax revenue receivable in two years, and the revenue will be taxable at 30%.
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