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Chapter 3 P1:Stephen Company is evaluating a capital investment proposal fornew office equipment for the current year. The initial investmentwould require the company to spend $50,000. The equipment would bedepreciated on a straight line basis over five years with nosalvage value. The company has estimated the before-tax annual cashinflow from the investment to be $15,000. The income tax rate is40% and all taxes are paid in the year that the related cash flowsoccur. All cash flows occur at year end.Determine the NPV of the capital investment proposal at 15%, thedesired after-tax rate of return. Should the proposal be acceptedor not accepted? Explain.
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