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PQR Corp plans to purchase equipment costing $350,000. The equipment has an expected life of 5 years with the following projected annual cash flows:
Year | Cash Flow ($) |
1 | 90,000 |
2 | 80,000 |
3 | 70,000 |
4 | 60,000 |
5 | 50,000 |
There is no salvage value, and the company will depreciate the equipment using straight-line depreciation. The corporate tax rate is 20%. Required:
- Calculate the Payback Period and ARR
- Determine NPV and PI, with a discount rate of 7%
- Calculate the IRR
- Assess the effect of tax rate changes on the project’s viability
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