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Brodigan Corporation has provided the following information concerning a capital budgeting project:

Investment required in equipment: $450,000
Net annual operating cash inflow: $220,000
Tax rate: 30%
After-tax discount rate: 12%

The expected life of the project and the equipment is 3 years and the equipment has zero salvage value. The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $162,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses.

Required:

Determine the net present value of the project.

Answer :

Answer: $36604.7

Explanation:

The net present value sometimes called the net present worth is applied to a series of cash flows that occurs at different times. Present value of a cash flow depends on time interval between now, the cash flow and on the discount rate. The net present value accounts for the time value of money.

The answer is $36604.7. The solution is attached.

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