The tool has no salvage value and is depreciated

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Mitchell Bancorp is considering making a loan at 3% interest (c/a) to Sohn Co to buy a machine tool worth $300 million. The tool has no salvage value and is depreciated over 3 years by sum-of-years digits. In this state, Sohn Co pays 50% tax. The before-tax cash flow is estimated as$200M, $250M, and $300M over the three years. The CEO of Mitchell Bancorp has noticed that SohnCo has been losing money in this business sector by investing wildly in projects and cautions the use of an After-Tax MARR of at least 12%. Assume that Mitchell Bancorp makes this loan. Will Sohn Co generate enough ATCF to pay back this loan? Explain your answer.

Reference no: EM13974825

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