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A used pumping unit is purchased to replace a smaller unit. It has a useful life of five years and costs $20,000. The pump will
A used pumping unit is purchased to replace a smaller unit. It has a useful life of five years and costs $20,000. The pump will generate an incremental $20,000 in the first year. However the revenue will decrease $2000 per year ineach of the next four years. Operating costs will be $4000 in the first year but will increase $500 per year in each of the following four years. a. Calculate financial net income before income taxes for each year using straight line depreciation (no salvage value). b. Prepare a net cash flow analysis for this investment. Draw the cash flow diagram. c. Calculate the financial net income after federal income taxes. Use cash taxes in the financial model to calculate after tax net income. Cash taxes are based on straight line depreciation with a 4 year life and 40% tax rate. Financial depreciation is based on a 5 year life straight line method. d. Calculate the NCF for this project after federal income taxes. Draw the cash flow diagram
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