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(Solved): A firm is considering investing $8.5 million in equipment which is expected to have a useful life of ...



A firm is considering investing $8.5 million in equipment which is expected to have a useful life of four years and is expected to reduce the firm’s labor costs by $3.5 million per year. Assume the firm pays a 30% tax rate on accounting profits and uses the straight line depreciation method. What is the after-tax cash flow from the investment in years 1 through 4? If the firm’s hurdle rate for this investment is 15% per year, is it worthwhile? What's the  NPV?



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