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24 January, 12:42

A piece of equipment costs $1.2m. the equipment has a useful life of 4 years. in each of the four years, the investment generates a cash inflow of $0.5m. the impact of the investment project on net income is derived by subtracting depreciation from cash flow each year. assuming the equipment is depreciated on a straight-line basis over 4 years, what is the average contribution to net income across all four years

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  1. 24 January, 16:00
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    Annual depreciation is

    Cost of equipment:useful life

    1.2m:4 years=0.3m

    The average contribution to net income across all four years is

    0.5m-0.3m=0.2m

    The answer is 0.2m
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