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Gaston Company is considering a capital budgeting project that would require a $2,400,000 investment in equipment with a useful life of five years and no
Gaston Company is considering a capital budgeting project that would require a $2,400,000 investment in equipment with a useful life of five years and no salvage value. The company's tax rate is 30% and its after-tax cost of capital is 13%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: $3,100,000 1, 630,000 1,470,000 Advertising, salaries, and other fixed $690,000 out-of-pocket costs Depreciation Total fixed expenses Net operating income 480,000 1,170,000 $300,000 Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables Required: Compute the project's net present value. Net present value
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