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    Finance:Capital budgeting.

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    Jared Corp. invests in a piece of equipment that cost $150,000, has a useful life of five years with no salvage value and will be depreciated using straight-line depreciation. The equipment will generate annual revenues of $60,000 and the company will incur annual cash Expenses of $24,000 in operating the equipment. Jared has a tax rate of 40%.

    Required:

    (1) What is the expected annual after-tax cash flow from this equipment?
    (2) What is the internal rate of return (rounded to the nearest tenth of a percent) on the equipment?
    (3) What is the net present value of the equipment if the required rate of return is 10%?
    (4) Would you recommend the investment?

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    COST ACCOUNTING
    Jared Corp. invests in a piece of equipment that cost $150,000, has a useful life of five years with no salvage value, and will be depreciated using straight-line depreciation. The equipment will generate annual revenues of $60,000 and the company will incur annual cash Expenses of $24,000 in operating the equipment. Jared has a tax rate of 40%.
    Required:
    (1) What is the expected annual after-tax cash flow from this equipment?
    Income statement
    Annual revenues 60,000

    Annual ...

    Solution Summary

    The problem requires that the after-tax cashflows be determined and furthermore the net present value, Internal rate of return as ascertained for an investment choice.

    $2.19

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