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You are thinking of buying a machine that has a 4-year useful life, and would require...

You are thinking of buying a machine that has a 4-year useful life, and would require an initial outlay of $240,000. The machine would be depreciated to a zero book value over 4 years on a straight-line basis, so depreciation would be $60,000 per year. The machine would generate an incremental increase in operating income of $100,000 per year in real terms before taxes, and the relevant tax rate is 40%. Inflation (i) is expected to be 8% per year, and the project's required return in real terms would be rr = 10%. What is the net present value of this machine?

Group of answer choices

-$17,505

$13,762

-$22,944

$26,269

Solutions

Expert Solution

jeff jeffy answered 5 months ago
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