Gaston Company is considering a capital budgeting project that would require a $1,900,000 investment in...
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Accounting
Gaston Company is considering a capital budgeting project that would require a $1,900,000 investment in equipment with a useful life of five years and no salvage value. The companys tax rate is 30% and its after-tax cost of capital is 16%. 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
$
3,100,000
Variable expenses
1,840,000
Contribution margin
1,260,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
580,000
Depreciation
380,000
Total fixed expenses
960,000
Net operating income
$
300,000
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required:
Compute the projects net present value. (Round discount factor(s) to 3 decimal places.)
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