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ABC Company has an investment proposal. It requires an initial capital outlay of $20 million. The investment will increase revenue by $10 million, increase cash
ABC Company has an investment proposal. It requires an initial capital outlay of $20 million. The investment will increase revenue by $10 million, increase cash expenses by $2 million and noncash depreciation expense by $5 million each year for the next five years. ABC has a tax rate of 30% and a cost of capital of 10%. 1. Determine the cash flow of the investment. 2. Determine the net present value of the investment. Should the investment be accepted? 3. If the investment generates a net cash flow of $30 million in five years instead, determine the internal rate of return. Should the investment be accepted
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