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You are considering investing in a process that promises to save you $8,000 per year, pre-tax. The process has an expected life of 5 years
You are considering investing in a process that promises to save you $8,000 per year, pre-tax. The process has an expected life of 5 years with an initial cost of $10,000. This cost is depreciated straight line over 5 years to a salvage value of $0, although the equipment is actually sold for $4,000 after 5 years. Assume a 30% tax bracket and a discount rate of 10%.
a)Calculate and show the cash flow for each year (Y0 thru Y5)
b)Calculate show the net present value of the cash flows
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