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A firm is considering installing a sprinkler system to minimize damage in the event of a fire. The sprinkler system will last only 3 years.
A firm is considering installing a sprinkler system to minimize damage in the event of a fire. The sprinkler system will last only 3 years. The initial cost of the system is $30,000. Yearly maintenance is expected to be $2.500. If the firm installs the system, its insurance premium can be reduced by $5,000 each year and the losses are expected to decrease by $9,000 each year. Further, the firm will take a $10,000 depreciation expense for the equipment each year. The firm's tax rate is 35% and its opportunity cost of capital (appropriate discount rate) is 5%. What is the net present value (NPV) of the project? -$112 O-562 +$2.925 -$2.734
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