Calculate the cash flow paying particular attention

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A company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below

Alternative I

Initial investment $64,000
Annual receipts $50,000
Annual disbursements $20,000
Annual depreciation $16,000
Expected life 4 years
Salvage value 0

Alternative II

Initial investment 120,000
Annual receipts 60,000
Annual disbursements 12,000
Annual depreciation 20,000
Expected life 6 years
Salvage value 0

At the end of the useful life of whatever equipment is chosen the product will be discontinued. The company's tax rate is 50 percent and its cost of capital is 10 percent.

Problem 1: Calculate the Cash flow paying particular attention to the cash flow impact of taxes and depreciation

Reference no: EM132659622

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