Year Net Cash Aow 1 $5,000 8,000 3 9,000 4 8,000 8,000 6 5,000 7 3,000 8 $-1,500 To secure the contract, the firm must spend $30,000 to retool its plant. This retooling will have no salvage value at the end of the years. Comparable investment alternatives are available to the firm that earn 12 percent compounded annually. The 8 2.
Year Net Cash Aow 1 $5,000 8,000 3 9,000 4 8,000 8,000 6 5,000 7 3,000 8 $-1,500 To secure the contract, the firm must spend $30,000 to retool its plant. This retooling will have no salvage value at the end of the years. Comparable investment alternatives are available to the firm that earn 12 percent compounded annually. The 8 2.
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
Problem 1PS
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Question
Transcribed Image Text:A firm wishes to bid on a contract that is expected to yield the
following after-tax net cash flows at the end of each year:
Year
Net Cash Aow
1
$5,000
2
8,000
3
9,000
4
8,000
8,000
5,000
7
3,000
8
$-1,500
To secure the contract, the firm must spend $30,000 to retool its
plant. This retooling will have no salvage value at the end of the
8 years. Comparable investment alternatives are available to the
firm that earn 12 percent compounded annually. The
depreciation tax benefit from the retooling is reflected in the
net cash flows in the table.
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