As capital investment analyst for the Parkhurst Printing Corporation, you have been asked to evaluate the advisability
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The purchase price of the press is expected to be $140,000; in addition, it will cost $10,000 to install it. The press will be depreciated on a straight-line basis over 5 years to a zero salvage value. However, it is expected to have a market value of $10,000 at the end of 5 years.
The press is expected to generate the following cash revenues and cash costs and expenses:
Because of increased production, additional working capital of $15,000 will be needed at t = 0 (today) and will be returned at the end of the project (5 years from now). The income tax rate is 40 percent, and the company's cost of capital is 12 percent. Calculate the net present value. Should the press be purchased?
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For
Managerial Economics
ISBN: 978-0133020267
7th edition
Authors: Paul Keat, Philip K Young, Steve Erfle
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