Question
Consider the case of super dupper Uber company which is considering purchasing a new car to replace an old one The old car has a
Consider the case of super dupper Uber company which is considering purchasing a new car to replace an old one The old car has a book value of zero but a market value of $15000. The new car costs costs $90000 and is expected to provide savings and increased profits of $20000 per year for the next 10 years. It has an expected useful life of 10 years, after which it's estimated salvage value would be $10000 Estimating the straight line depreciation a 34 percent effective tax rate and a cost of capital of 12 percent, should super duper Uber company replace the current car? What should happen if the cost of capital would be higher or lower than 12 percent and why could this happen?
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