(Appendix 8C)Hauge Corporation Is Considering a Capital Budgeting Project That

question 21

Essay

(Appendix 8C)Hauge Corporation is considering a capital budgeting project that involves investing $750, 000 in equipment that would have a useful life of 3 years and zero salvage value.The net annual operating cash inflow, which is the difference between the incremental sales revenue and incremental cash operating expenses, would be $390, 000 per year.The project would require a one-time renovation expense of $70, 000 at the end of year 2.The company uses straight-line depreciation and the depreciation expense on the equipment would be $250, 000 per year.Assume cash flows occur at the end of the year except for the initial investments.The company takes income taxes into account in its capital budgeting.The income tax rate is 30%.The after-tax discount rate is 13%.
Required:
Determine the net present value of the project.Show your work!

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Definitions:

Carbohydrates

Organic compounds made up of carbon, hydrogen, and oxygen, serving as a major source of energy for living organisms, and found in foods as sugars, starches, and fiber.

Preprophase Band

In plant cells, a dense array of microtubules just inside of the plasma membrane that appears just prior to mitosis and determines the plane in which the cell will divide.

Mitosis

Mitosis is a cell division process that results in two genetically identical daughter cells from a single parent cell, crucial for growth and tissue repair.

Cell Division

The process by which a parent cell divides into two or more daughter cells, allowing for growth and the replacement of worn-out cells.