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Question: A new electronic process monitor costs $701,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor could actually be worthless in 5 years. The new monitor would save us $365,000 per year before taxes and operating costs.

a) If we require a 13 percent return, what is the NPV of the purchase? Assume a tax rate of 28 percent.

b) In the previous question, suppose the new monitor also requires us to increase net working capital by $39.100 when we buy it. Further suppose that the monitor could actually be worth $101,000 in 5 years. What is the NPV?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92851468

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