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July 23, 2014

Homework Help: Economics

Posted by Anonymous on Tuesday, December 14, 2010 at 5:21pm.

Moore Company is considering an expansion project. It would require the acquisition of an asset that would be depreciated straight line to zero over the 4 years of the project. It expects to be able to sell the asset for $50,000 at the end of year 4. If the project is undertaken it would require an increase in NWC of $40,000 at the beginning. This NWC will be recovered at the termination of the project. If the project is undertaken the firm would realize an additional $600,000 in sales over each of the next four years. Operating costs excluding depreciation would also increase by $200,000 per year for 4 years. The company’s tax rate is 40%, and the cost of capital is 10%. What is the most the company should pay for the needed equipment?

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