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Unformatted text preview: per year of $25,000 times 1 minus the tax rate of 40%. Question C The additional (non-operating) cash flow in Year 3 is $24,380. The calculation to find the additional (non-operating) cash flow in Year 3 is as follows: Year 3 Salvage Value $30,000 Tax on Salvage Value ($9,620) Return on Net Working Capital $24,380 Tax on Salvage Value is found by taking the amount of the salvage value less the book value times the tax rate. Question D If the projects cost of capital is 10%, the spectrometer should not be purchased since the project has a negative net present value. The calculation proving the negative net present value of the project is as follows: Year 1 Net Cash Flow Present Value @ 10% ($89,000) ($89,000) 1 $26,220 $22,836 2 $30,300 $25,041 3 $44,480 $33,418 The Net Present Value is the sum of all future cash flows less the initial investment or ($6,705)...
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This note was uploaded on 03/01/2012 for the course ACCOUTNING 550 taught by Professor Abner during the Spring '11 term at DeVry Houston.
- Spring '11