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Your job as a financial analyst is to make projections and evaluations of your firm's business decisions. Your firm is weighing a purchase of new
Your job as a financial analyst is to make projections and evaluations of your firm's business decisions. Your firm is weighing a purchase of new equipment that would save time in the storage of finished goods and help goods to move quickly through the internal supply chain. The cost of the investment is $45,000. Assuming the purchase has the following attributes, what is the net present value of the investment? Assume a discount rate of 7 percent. Determination of Earnings Year 1 Year 2 Year 3 Earnings before Depreciation and Taxes 22,000 22,000 22,000 Depreciation 15,000 15,000 15,000 Taxable Income 7,000 7,000 7,000 Taxes (20%) 1,400 1,400 1,400 Net Income 5,600 5,600 5,600 Determination of Cash Flows Year 1 Year 2 Year 3 Net Income 5,600 5
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