Question

Gaston Company is considering a capital budgeting project that would require a $ 2,000,000 investment in equipment with a useful life of five years and no salvage value. The company’s tax rate is 30% and its after-tax cost of capital is 13%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows:


Required:
Compute the project’s net present value.


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  • CreatedMay 20, 2014
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