XYZ Corporation has just purchased a new plant and machinery for $10 million. The useful life of
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XYZ Corporation has just purchased a new plant and machinery for $10 million. The useful life of the asset is estimated to be 10 years, with no residual value. The corporation uses straight-line depreciation. The corporation's tax rate is 30%. The corporation's cost of capital is 10%. The corporation expects to generate $2 million in cash inflows each year for the next 10 years from the use of the asset.
a) Calculate the book value of the asset at the end of year 3.
b) Calculate the net present value of the asset, assuming a discount rate of 10%.
c) Explain the effect of a decrease in the corporation's tax rate on the net present value of the asset.
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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