Blues Bros

Business Feb 24, 2021

Blues Bros. Inc.

Blues Bros. Inc. is considering an investment in a computer that is capable of producing various images that are useful in the production of commercial art. The computer would cost $20,000 and have an expected life of eight years. The computer is expected to generate additional annual net cash receipts (before-tax) of $6,000 per year. The computer will be depreciated according to the straight-line method and the firm's marginal tax rate is 25 percent.

1. Refer to Blues Bros. Inc. What is the after-tax payback period for the computer project?

2. Refer to Blues Bros. Inc. (Present value tables needed to answer this question.) What is the after-tax net present value of the proposed project (using a 16 percent discount rate)?

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