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What is the expected real value of the depreciation charge

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Suppose a firm has just made an investment in the Congolese Republic that will generate €2 million annually in depreciation, converted at today's spot rate. Pro- jected annual rates of inflation in Congolese Republic and in the Eurozone are 7% and 4%, respectively.

Problem 1: If the real exchange rate is expected to remain constant and the Congolese Republic tax rate is 50%, what is the expected real value (in terms of today's euros) of the depreciation charge in year 5, assuming that the tax write-off is taken at the end of the year?

Reference no: EM132993328

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