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CF Estimation. Stanton Inc. is considering the purchase of a newmachine which will increase earnings before depreciation and taxesby $6,000 annually. Stanton will use the straightline method todepreciate the machine down to zero, and it expects to sell themachine at the end of its 5-year operating life for $10,000 beforetaxes. Stanton’s marginal tax rate is 40%, and it uses 9% cost ofcapital to evaluate projects of this type. If the net cost of themachine is $40,000, what is the project’s NPV? Hint: depreciationis $8,000 per year.
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