Great Northern Fishing Company is contemplating additional revenue of $26,000 per year for seven years. Additional costs, other than depreciation, will equal $12,000 per year. The smoker has an expected life of seven years, at which time it will have no residual value. Great Northern uses the straight-line method of depreciation for tax purposes. Determine the net present value of the investment if the required rate of return is 14 percent and the tax rate is 40 percent. Should Great Northern make the investment in the smoker?
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