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A firm is considering a new project that will require purchasing equipment which will have a cost of $18 million. Installation and modification of the equipment will cost $2 million. The project has a five year life, and the equipment will be depreciated using 3-year MACRS depreciation. The firm’s marginal tax rate is 40%.
a. Compute the depreciation expense each year over the five-year life of the project.
b. The firm estimates that the equipment could be sold for $3 million at the end of the project’s life. Compute the after-tax proceeds from the sale of equipment in year 5.
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Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of $9,953, $6,030, and $13,798 over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determ..
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