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Acme Ltd, a scrap metal dealer, is considering the acquisition of a "Roadrunner metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year 1 2 3 4 5 O $4,977 O - $4,977 O $6,652 Net cash flow ($) O-$6,652 6000 10,000 12,000 Depreciation is $5000 per annum and the company tax rate is 40 per cent. Compute the project's NPV. If the project's after-tax required rate of return is 8 per cent per annum, should the project be adopted? 15,000 7000

Acme Ltd, a scrap metal dealer, is considering the acquisition of a "Roadrunner metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year 1 2 3 4 5 O $4,977 O - $4,977 O $6,652 Net cash flow ($) O-$6,652 6000 10,000 12,000 Depreciation is $5000 per annum and the company tax rate is 40 per cent. Compute the project's NPV. If the project's after-tax required rate of return is 8 per cent per annum, should the project be adopted? 15,000 7000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Acme Ltd, a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year 1 2 3 4 5 O $4,977 O - $4,977 O $6,652 Net cash flow ($) O -$6,652 6000 10,000 12,000 Depreciation is $5000 per annum and the company tax rate is 40 per cent. Compute the project's NPV. If the project's after-tax required rate of return is 8 per cent per annum, should the project be adopted? 15,000 7000
Transcribed Image Text:Acme Ltd, a scrap metal dealer, is considering the acquisition of a 'Roadrunner' metal compactor at the cost of $25,000. The compactor is estimated to have zero value at the end of its five-year life. It will return the following annual net cash flows. Year 1 2 3 4 5 O $4,977 O - $4,977 O $6,652 Net cash flow ($) O -$6,652 6000 10,000 12,000 Depreciation is $5000 per annum and the company tax rate is 40 per cent. Compute the project's NPV. If the project's after-tax required rate of return is 8 per cent per annum, should the project be adopted? 15,000 7000
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