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Business, 14.02.2022 05:20 CadenClough13

Mark Pharmaceutical Company may buy DNA-testing equipment costing $50,000. Mark spends $50,000 to do more researching on the DNA-testing equipment and
10,000 for installation. Suppose that 6 percent inflation in savings from labor costs is
expected over the last four years, so that savings in the first year are $20,000, savings
in the second year are $21,200, and so forth. The equipment has a useful life of five
years but falls in the three-year property class for cost recovery (depreciation)
purposes using the MACRS depreciation percentages. If working capital of $10,000
were required in addition to the cost of the equipment and this additional investment
were needed over the life of the project. The estimated final salvage value of the new
equipment is $20,000 is expected at the end of the fifth year. The corporate tax rate
for Mark is 38 percent, and its required rate of return is 15 percent. (If profits after
taxes on the project are negative in any year, the firm will offset the loss against other
firm income for that year.) On the basis of this information, what are the relevant cash
flows? Evaluate the cash flows using different methods and give your

Requirements:
1-Introduction
2-Initial Cash flow with providing calculation details
3- Incremental Cash flows with providing calculation details
4-Terminal Cash flow with providing calculation details
5-Using different methods to evaluate the cash flows with providing calculation
details
6-Conclusion

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Answers: 1

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