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Gaston Company is considering a capital budgeting project that would require a $2,100,000 investment in equipment with a useful life of five years and no
Gaston Company is considering a capital budgeting project that would require a $2,100,000 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 12%. 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: $2,900,000 1,630,000 1,270,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $510,000 420,000 930,000 340,000 $ Click here to view Exhibit 14B-1 and Exhibit 14B-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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