Question
A company must purchase a new piece of equipment for a project that will last for four years. The purchase price is 1 million. Company
A company must purchase a new piece of equipment for a project that will last for four years. The purchase price is 1 million. Company estimates it can sell the equipment at the end of year 4 for .10 million. For tax purposes, the equipment will be classified as a 5 year property. and the copmany uses straightline depreciation (zero terminal value). Cost of capital is 8%. Tax rate is 30%. On an after tex basis, what is the net equipment cost of this machine?
Use component cash flow analysis (PV depreciation tax shield, PV asset sale, and Net equipment cost)
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