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Problem 2.2. You are evaluating a new project. The project will result in revenue of $50,000 each year for the next 3 years. The annual
Problem 2.2. You are evaluating a new project. The project will result in revenue of $50,000 each year for the next 3 years. The annual costs of production are 50% of annual revenue. The project requires immediate purchase of a machine for $30,000. The machine will be depreciated to zero using straight line depreciation method over 3 years. The project also requires net working capital of $10,000. This investment in net working capital will be made immediately and it will be recovered after 3 years. The estimates are based on a feasibility study that was performed by a consulting firm. You have paid a consulting firm $10,000 for the study. The corporate tax rate is 20%. The cost of capital for the project is 15%. What is the net present value of the project? 12 points
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