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XYZ Company is considering purchasing an asset for $100,000 that has a 5-year useful life and a $20,000 salvage value. Double declining balance depreciation

 

XYZ Company is considering purchasing an asset for $100,000 that has a 5-year useful life and a $20,000 salvage value. Double declining balance depreciation will be used. The asset will produce $50,000/year in savings but will cost $10,000/year to operate. The company is subject to a combined tax rate of 34%. It uses an after-tax MARR of 20%. a) Determine the after-tax cash flows for this investment. (2 Points) b) Using net present worth analysis, determine whether purchasing this equipment would be a wise choice for the company to make. (2 Points) c) Suppose the company sells the asset for $30,000 at the end of Year 3. Calculate the equipment's final book value in Year 3 and the capital gain. (2 Points)

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The aftertax cash flows for this investment are as follows Year 1 50000 10000 3400 36600 Year 2 5000... blur-text-image

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