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To open a new store, Linton Tire Company plans to invest $364,000 in equipment expected to have a seven -year useful life and no salvage value. Linton expects the new store to generate annual cash revenues of $325,000 and to incur annual cash operating expenses of $189,000. Linton’s average income tax rate is 40 percent. The company uses straight-line depreciation.
Required
Determine the expected annual net cash inflow / outflow from operations for each of the first four years after Linton opens the new store. (Negative amounts should be indicated by a minus sign.)
A 10-year loan in the amount of $238,000 is to be repaid in equal annual payments. The interest rate is 7 percent, compounded annually. What is the amount of interest that is included in the loan payment for Year 3?
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