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A firm is considering the purchase of equipment which will cost $1 million. This equipment will last for seven years, at the end of which
A firm is considering the purchase of equipment which will cost $1 million. This equipment will last for seven years, at the end of which it can be sold for $100,000. The CCA rate for this asset class is 30%, and the firm expects to have other assets in this asset class at the end of year 7. This equipment is expected to increase before-tax operating cash flows by $303,030 per year. However, in order to put the equipment to use, an additional $150,000 will need to be invested in net working capital initially (i.e., at t=0). The required rate of return is 15% and the firms marginal tax rate is 34%. Should the firm purchase this equipment
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