Firm estimates that the nominal cash revenues and expenses

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People, Inc., is considering an investment of $368,000 in an asset with an economic life of 5 years. The firm estimates that the nominal cash revenues and expenses at the end of the first year will be $248,000 and $73,000, respectively. Both Revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $48,000 in nominal terms at that time. The one-time net working capital investment of $11,500 is required immediately and will be recovered at the end of the project. All corporate cash flows are subject to a 38 percent tax rate.

Reference no: EM132034566

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