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A firm is considering investing $10 million in equipment that is expected to have a designed useful life of 6 years The equipment can reduce
A firm is considering investing $10 million in equipment that is expected to have a designed useful life of 6 years The equipment can reduce the firm's annual operational cost by S3 million for each of the first 3 years, and $2 million for each of the last 3 years. The following two questions are independent. (1) Assume that the firm pays 40% income tax rate on its taxable income. The equipment's depreciation schedule is $2.5 million per year. If the firm's after-tax MARR is 10% per year, is this a good project? (2). The firm needs an 8-year plan required by the board. As such, a replacement plan for the equipment is needed. The firm estimates the market price of the equipment at the end of each of the designed 6 years is 7, 5, 4, 2, 1, 0 (millions), respectively. Assume MARR-5%. Please make a recommendation for the firm
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