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Plastic division has an expansion opportunity that costs 550,000, with a residual value of 50,000 and...

Plastic division has an expansion opportunity that costs 550,000, with a residual value of 50,000 and a useful life of 5 years. Assume Straight Line depreciation for accrual purposes and MACRS for taxes. The cost of capital (minimum required return) is 11 percent and the effective tax rate is 29 percent. The annual sales increase due to this project is 350,000 with 90 percent in cash for the year and a contribution margin ratio of 65 percent. The increase in working capital is 6,000 dollars, which will be fully returned at the end of the useful life of the project. Their marginal tax rate is 21 percent.

a. Find the NPV of the project cash flows INCLUDING the effect of income taxes.

b. Find the NPV of project cash flows WITHOUT the effect of income taxes.

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