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Calculate the net present value of the estimated cash flows

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Question - Palm Company is considering the purchase of a new machine at a cost of $12,000. It should save $3,000 in cash operating costs per year. The tax rate is 40%. Its estimated life is eight years. The estimated salvage value is $1,000 which is ignored in calculating ACRS depreciation.

Straight-line depreciation over the life of the proposal would be used for book purposes and ACRS for three-year property would be employed for tax purposes. The ACRS personal property rates are presented below.

ACRS Tables for Three-Year Property

Year 1-25%

Year 2-38%

Year 3-37%

REQUIRED - Calculate the net present value of the estimated after-tax cash flows of the Palm proposal if the minimum acceptable rate of return is 10%.

Reference no: EM132605364

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