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A corporation is considering the purchase of new equipment. Although the machine being considered will result in an increase in earnings before interest and taxes
A corporation is considering the purchase of new equipment. Although the machine being considered will result in an increase in earnings before interest and taxes of 25,000 SAR per year, it has a purchase price of 108,000 SAR, and it would cost an additional 3,000 SAR to properly install the machine. | |||||||||||||||||||||||
This machine has an expected life of 8 years, after which it will have no salvage value. Also, assume that there is simplified straight-line deprecation and that this machine is being depreciated down to zero, a 33 percent marginal tax rate, and a required rate of return of 12 percent. | |||||||||||||||||||||||
a. What is the initial outlay assoicated with this project? | |||||||||||||||||||||||
b. What are the annual after-tax cash flows associated with thisproject for years 1 through 9? | |||||||||||||||||||||||
c. What is the terninal cash flow in year 10? |
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