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Capital Budgeting

ABC Inc. is considering investing in a new machine. If it purchases the machine, annual cash revenues will increase by $125,000 whereas annual cash expenses will increase by $70,000. The machine costs $85,000 and has a useful life of 5 years. The tax rate is 34% and ABC Inc desires a 20% rate of return. A) Compute the net present value of the investment, assuming straight-line depreciation. B) Compute the net present value of the investment, assuming a 5 year recovery period and MACRS depreciation. C) Is the machine an acceptable investment? Tables attached.

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