Management Is Considering Purchasing an Asset for $30,000 That Would

question 6

Essay

Management is considering purchasing an asset for $30,000 that would have a useful life of 5 years and no salvage value. For tax purposes, the entire original cost of the asset would be depreciated over 5 years using the straight-line method. The asset would generate annual net cash inflows of $18,000 throughout its useful life. The project would require additional working capital of $8,000, which would be released at the end of the project. The company's tax rate is 30% and its discount rate is 14%.
Required:
What is the net present value of the asset?

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