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Suppose that the initial cost of an investment is $75,000, the present value of tax saving from depreciation is $2,000, and the present value after
Suppose that the initial cost of an investment is $75,000, the present value of tax saving from depreciation is $2,000, and the present value after tax terminal value is $30,000. It is expected that the investment will increase yield and this operating receipts by $15,000 per year but it will cost $5,000 a year to pay for electricity, maintenance, and additional labor. There is a pretax discount rate of 12% while the marginal tax rate over the next 5 years is 20%. What is the break-even price of operating receipt?
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