Question
Your firm is considering investing in a new capital project that requires an initial investment of $600,000. This equipment will be depreciated by the straight-line
Your firm is considering investing in a new capital project that requires an initial investment of $600,000. This equipment will be depreciated by the straight-line over four years down to a value of zero. The machinery also has an operation life of four years. At the end of that life, you estimate it will have a salvage value of $85,000. Any gain or loss on the resell will be taxed at the firms marginal tax rate. During the four-year life, the project should generate annual cash flows of $175,000 per year.The firm has a marginal tax rate of 24%, and it requires a return of 9.50% on projects of such risk.
What is the Net Present Value of this project?
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