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. An asset is used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of

. An asset is used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $8,600,000 and will be sold for $1,890,000 at the end of the project. If the tax rate is 35 percent, what is the after-tax salvage value of the asset?

5. Consider the following cash flows on two mutually exclusive projects.

Year

Project A

Project B

0

-54,000

-64,000

1

26,000

29,000

2

32,000

38,000

3

19,000

23,000

The cash flows of Project A are expressed in real terms which those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose?

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