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Suppose Blue Thumb Tools is considering the introduction of anew, heavier hammer to be used for driving spikes. The new hammerwill cost $490,000. The cost will be depreciated straight-line tozero over the project’s five-year life, at the end of which the newhammer can be scrapped for $40,000. The new hammer will save thefirm $146,000 per year in pretax operatingcosts, and it required an initial investment in networking capital of $35,000. The tax rate of the firm is 30%. Whatare the cash flows of firm’s new project (using a time line)?
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