Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question
Acompany is evaluating the addition of equipment to its presentoperations. They need to
purchase equipment for $160,000. The five year MACRS GDS Recovery Method is
appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue
is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is
expected that the operation will be shut down at the end of the fourth year with a salvage value
of $20,000.
2-Draw a BTCFD
Expert Solution
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Step 1
Consider the life of equipment under a special class with life 3 Years.
And WACC be 10% For calculation of NPV of cash flows
The following table depicts the Net present value of cash flow
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