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Springfield Fishing Company is contemplating the purchase of a new smoker. The smoker will cost $48,000...

Springfield Fishing Company is contemplating the purchase of a new smoker. The smoker will cost $48,000 but will generate additional revenue of $36,200 per year for 6 years. Additional costs, other than depreciation, will equal $10,800 per year. The smoker has an expected life of 6 years, at which time it will have no residual value. Springfield uses the straight-line method of depreciation for tax purposes.

Determine the net present value of the investment if the required rate of return is 14 percent and the tax rate is 40 percent.

Net Present Value=

Should Springfield make the investment in the smoker?

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