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Green Forest Industrial is considering a project that would last for 2 years. The project would involve an initial inves...

Green Forest Industrial is considering a project that would last for 2 years. The project would involve an initial investment of 85,000 dollars for new equipment that would be sold for an expected price of 78,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 25,000 dollars over 6 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 85,000 dollars per year and relevant annual costs for the project are expected to be 35,000 dollars per year. The tax rate is 50 percent and the cost of capital for the project is 7.06 percent. What is the net present value of the project?

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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В C D 1 $85,000.00 $25,000.00 Initial Investment 2 Remaing value at end of life useful life Annual depreciation 4 6 $10,000

Cell reference -

A В с D E 1 2 Initial Investment 85000 Remaing value at end of life 3 25000 useful life 4 6 Annual depreciation (C2-C3)/ 6 5

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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