A small research device can be purchased for $10,000 and depreciated by 5-year MACRS depreciation. The net benefits from the device, before deducting depreciation, are $2500 at the end of the first year and increasing $1250 per year after that, until the device is hauled to the junkyard at the end of 10 years. During the 10-year period there will be an inflation rate f of 7%. This profitable corporation has a 28% combined federal and state income tax rate. If it requires a real 15% after-tax rate of return on its investment, should the device be purchased?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.