Pizza Planet Co.Pizza Planet Co. paid a consultant to study the desirability of installing some new...

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Pizza Planet Co.Pizza Planet Co. paid a consultant to study the desirability of installing some new equipment. The consultant submitted the following analysis:Cost of new equipment$50,000Present value of after-tax revenues from operation$45,000Present value of after-tax operating expenses$10,000Present value of depreciation expenses$43,750Consulting fees and expenses$375The corporate tax rate is 40%. In a1- to 2-page paper, explain whether Pizza Planet Co. should install the new equipment. Justify your response with supportive examples and references.

Khushboo · Accepted Answer

Decision regarding investment project:
Capital budgeting is the method used by an entity to analyze the proposed new investment decision (Paul Cole). The new investment proposals are required careful consideration and the decision should be taken after analyzing all the aspects. NPV is one of the best methods for new investment decision and it is used and accepted worldwide. Under Net Present Value (NPV) method the present value of net cash flows is calculated over the life of the project and project is accepted based on positive cash flows from the project.

Pizza Planet Co. Pizza Planet Co. paid a consultant to study the desirability of installing some new equipment. The consultant submitted the following analysis: Cost of new equipment $50,000 Present...

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Cost of new equipment	$50,000
Present value of after-tax revenues from operation	$45,000
Present value of after-tax operating expenses	$10,000
Present value of depreciation expenses	$43,750
Consulting fees and expenses	$375