Jasper company has a payback goal of three years on acquisitions. Of new equipment. Anew piece of equipment that costs $450,000 and a five - year life is being considered. Straight-line (SL) depreciation will be used, with zero salvage value. Jasper is subject to a 30% income tax rate. To meet the company's payback goal after-tax, the equipment must generate reductions in annual cash operating costs of:

A. $60,000

B. $114,000

C. $150,000

D. 190,000

E. $200,000

The correct answer is D.

Explanation:

Giving the following information:

Jasper company has a payback goal of three years on acquisitions. Of new equipment. Anew piece of equipment that costs $450,000 and a five - year life is being considered. Straight-line (SL) depreciation will be used, with zero salvage value. Jasper is subject to a 30% income tax rate.

Depreciation = 450,000/5 = 90,000

We need to reach a net cash flow of at least $150,000

Reduction on costs = 190,000

Depreciation = 90,000 (-)

EBIT = 100,000

Tax = 30,000 (-)

Depreciation=90,000

Net operating income = 160,000