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ABC co is considering replacing an old computer with a new one. The old one was purchased 1 year ago today for $600,000. It is depreciated straight line to zero over 6 years. it is expected to be worth 10,000 at the end of 6 year life. If ABC sells today, ABC should receive $300,000 for the computer. The new computer costs $750,000. it has a life of 5 years and will be depreciated straight line to zero over its 5 year life. It is expected to be worthless at the end of its 5 year life. The new generator is expected to reduce operating costs by $200,000 per year. There is no change in net working capital. The discount rate of this replacement project is 15% and the tax rate is 40%.

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