Capital Budgeting
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2) Your firm has an opportunity to make an investment of $50,000. Its cost of capital (interest rate) is 12 percent. It expects after-tax cash flows (including the tax shield from depreciation) for the next 5 years to be as follows:
Year 1 10,000
Year 2 20,000
Year 3 30,000
Year 4 20,000
Year 5 5,000
Hint: You can use the Present Value Table A. 1c in pages 552 and 553 of your text book.
2a) Calculate the NPV
2b) Calculate the IRR (to the nearest percent)
2c) State whether this project should be accepted or rejected.
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This solution is comprised of a detailed explanation to calculate NPV and IRR, and state whether this project should be accepted or rejected.
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cost of capital
2) Your firm has an opportunity to make an investment of $50,000. Its cost of capital (interest rate) is 12 percent. It expects after-tax cash flows (including the tax shield from depreciation) for the next 5 years to be as follows:
Year 1 10,000
Year 2 20,000
Year 3 30,000
Year 4 20,000
Year 5 5,000
Hint: You can use the ...
Purchase this Solution
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