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Capital Budgeting

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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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 ...

Solution Summary

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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