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1. Assume a firm has earnings before depreciation and taxes of $660,000 and no depreciation. It is in a 30 percent tax bracket. a. Compute
1. Assume a firm has earnings before depreciation and taxes of $660,000 and no depreciation. It is in a 30 percent tax bracket.
a. Compute its cash flow.
Cash flow:
b. Assume it has $660,000 in depreciation. Recompute its cash flow.
Cash flow:
c. How large a cash flow benefit did the depreciation provide?
Benefit in cash flow:
2. Assume a $52,000 investment and the following cash flows for two alternatives.
Year | Investment A | Investment B | ||||
1 | $ | 15,000 | $ | 25,000 | ||
2 | 15,000 | 15,000 | ||||
3 | 15,000 | 20,000 | ||||
4 | 10,000 | |||||
5 | 15,000 | |||||
|
a. Calculate the payback for investment A and B. (Round your answers to 2 decimal places.)
Investment A years:
Investment B years:
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