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Analyze exchange transaction: PV of depreciation tax shield, cash flows, NPV

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New asset $400,000
salvage value 30,000
old equpiment tax-basis 60,000
revenues 200,000
savings first three years @ 120,000
fourth year 90,000
tax rate 40%
after-tax cost 10%

A. What is the present value of the depreciation tax shield for the new asset for Year 1?

B. What are the cash flows (net of tax) associated with the disposal of the old asset?

C. What is the investment 's net present value (after tax)?

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The expert analyzes the exchange transaction for PV of depreciation tax shield, cash, flows and NPV.

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