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Basic capital budgeting problem with straight-line depreciation. The Roberts Company has cash inflows of $140,000 per year on project A and cash outflows of $100,000 per year. The investment outlay on the project is $100,000; its life is 10 years; the tax rate, 'Cc, is 40%. The opportunity cost of capital is 12%.

a) Present two alternative formulations of the net cash flows adjusted for the depreciation tax shelter.

b) Calculate the net present value for project A, using straight-line depreciation for tax purposes.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92001137

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