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3. A project has the following characteristics: Initial investment is $1,700,000 Initial investment is depreciated to $0 over its 10 year life Project generates incremental
3. A project has the following characteristics:
Initial investment is $1,700,000
Initial investment is depreciated to $0 over its 10 year life
Project generates incremental after-tax cash flows (OCF) of $325,000 per year over the projects life
Project requires a net working capital (NWC) investment today of $50,000, which is recovered at the end of the project
Assets purchased with the initial investment are expected to have a salvage value of $74,000 at the end of the project
The firm faces a 28% tax rate
The firm requires an effective annual return of 12% on this investment.
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