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Exhibit I: A firm is considering a 3-year project with the following information: In Year...

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Exhibit I: A firm is considering a 3-year project with the following information: In Year 0: New equipment will be purchased for $400,000. Inventories will rise by $60,000 and accounts payable will rise by $25,000. In Years I through 3: In Years 1 and 2, net working capital will not change. In Year 3, net working capital will be fully recovered In Years 1 through 3, Operating Cash Flow will be $63,600 per year. In Year 3, equipment will be sold for $40,000 (before-tax). Equipment will be depreciated using MACRS rates of 33%, 45%, 15%, 7% in Years 1, 2, 3, 4. Tax rate = 40% In addition to information in Exhibit I, you have realized new facts. The new equipment will be operated in a vacant building already owned by the firm. The firm purchased the building for $200,000 two years ago and estimates that selling the building today would result in an after-tax cash flow of $300,000. Considering this additional information, what is the project's initial investment cash flow (a.k.a. cash flow from investment in Year O)? O a.-$735,000 O b.-$760,000 O c.-$635,000 O d. -$660,000 O e. -$700,000

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