Question
Problem 3.3. You calculated the Net Present Value (NPV) of a project to be $16,000. You realize that you forgot to include cash flows of
Problem 3.3. You calculated the Net Present Value (NPV) of a project to be $16,000. You realize that you forgot to include cash flows of a computer you need for the project. You will buy the computer immediately for $3,000. The computer will be depreciated using MACRS schedule as a 5-year property and will be worthless after 5 years. Assume that the first depreciation is realized immediately. The marginal tax rate is 20%. The cost of capital is 15%. Determine the incremental cash flows related to the computer, calculate their NPV, and calculate the corrected NPV of the project. (Please show workings)
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