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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
12-43   Straightforward Capital Budgeting with Taxes; Sensitivity Analysis Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine’s estimated life is six years and its estimated salvage value is $600. The company estimates that annual cash savings from using this machine will be $8,000. The company’s after-tax cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation (non-MACRS-based).
1.   What is this investment’s net after-tax annual cash inflow?
2.   Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the payback period?
3.   Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the net present value (NPV) of this investment?
4.   What are the minimum net after-tax annual cost savings that make the proposed investment acceptable (i.e., the dollar cost savings that would yield a NPV of $0)?
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