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Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $110,000 and sell its old low-pressure glueball, which is fully depreciated, for $20,000. The new equipment has a 10-year useful life and will save $24,000 a year in expenses. The opportunity cost of capital is 10%, and the firm’s tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92811425

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