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Net Present Value and Economic Profit for $1M capital investment

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A $1 million capital investment will generate cash flows of $700,000 at the end of each year for 2 years, after which it will be worthless.

(a) Compute the net present value using a 10% required rate of return.

(b) Assume depreciation of $600,000 the first year and $400,000 the second year, compute the economic profit for each year, and compute the present value of the economic profit.

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The expert determines the net present value and economic profits for $1M capital investments.

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