A company is considering purchasing an asset for $57,000 that would have a useful life of 5 years and would have a salvage value of $5,000. For tax purposes, the entire original cost of the asset would be depreciated over 5 years using the straight-line method and the salvage value would be ignored. The asset would generate annual net cash inflows of $33,000 throughout its useful life. The project would require additional working capital of $8,000, which would be released at the end of the project. The company’s tax rate is 40% and its discount rate is 12%.
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