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Management is considering purchasing an asset for $31,000 that would have a useful life of 4 years and no salvage value. For tax purposes, the
Management is considering purchasing an asset for $31,000 that would have a useful life of 4 years and no salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 4 years using the straight-line method. The asset would generate annual net cash inflows of $22,000 throughout its useful life. The project would require additional working capital of $2,000, which would be released at the end of the project. The company's tax rate is 40% and its discount rate is 6%.
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