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Gaston Company is considering a capital budgeting project that would require a $2,200,000 investment in...

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Accounting

Gaston Company is considering a capital budgeting project that would require a $2,200,000 investment in equipment with a useful life of five years and no salvage value. The company's tax rate is 30% and its after-tax cost of capital is 12%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-of-
pocket costs
Depreciation
Total fixed expenses
Net operating income before
tax
References
Required:
Compute the project's net present value.
Net present value
image

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