Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The company DstriBut.inc decides to take a technological shift by replacing its old distribution center with a new one that is more oriented towards technology and less dependent on manpower. The entire installation is estimated at $6,000,000 amortized at the rate of 30% decreasing.
An immediate expense of $30,000 (taxable and non-
The company estimates to increase its operating cash flow by $1,500,000 before tax. On the other hand, the company must assume an expense for the maintenance and replacement of consumable components of new installations in the amount of $50,000 every 2 years.
This investment will have a residual value of $2,500,000 at the end of the investment horizon, which is set at 5 years by senior management.
The tax rate is 40% and the
Based on the choice criterion of reversal of the
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