Problem 1 Management is considering purchasing an asset for $20,000 that would have a useful life
of 10 years and no salvage value. For tax purposes, the entire original cost of the asset would be
depreciated over 10 years using the straight-line method. The asset would generate annual net
cash inflows of $12,000 throughout its useful life. The project would require additional working
capital of $6,000, which would be released at the end of the project. The company's tax rate is
40% and its discount rate is 13%. Questions: What is the annual NET (after tax) Cash Inflows? (4 points) What is the annual Depreciation Deduction? (4 points) |