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A firm is considering investing $15 million in machinery equipment that is expected to have a useful life of five years and is expected to
A firm is considering investing $15 million in machinery equipment that is expected to have a useful life of five years and is expected to reduce the firm's labor costs by $5 million per year. Assume the firm pays a 30% tax rate on accounting profits and uses the straight-line depreciation method. What is the after-tax cash flow from the investment in years 1 through 5? If the hurdle rate for this investment is 15% per year, is it worthwhile? What are the IRR and NPV of the investment?
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