Island Ferry plans to expand operations by acquiring another boat. They have a bid of ($ 925,000)

Question:

Island Ferry plans to expand operations by acquiring another boat. They have a bid of $\$ 925,000$ from a boat manufacturer to provide a boat that can carry 40 passengers. The boat has an expected life of eight years with an expected residual value for financial reporting and tax purposes of $\$ 47,000$. Island Ferry has a tax rate of 40 percent and uses straight-line depreciation for tax purposes. Their required rate of return is 10 percent. The following annual cash flows relate to the investment in the new boat.

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