Question: In January 2012 Herdt Company is trying to decide whether

In January 2012, Herdt Company is trying to decide whether to buy one, both, or neither of the following investments. Herdt Company’s cost of capital is 16 percent and its tax rate is 30 percent. Neither investment has a salvage value.
A. Compute the net present value for both investments.
B. Assume that the cash flows could vary up and down by as much as 10 percent. Given the potential fluctuations, which investment would you consider acceptable? Explain your decision.

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  • CreatedMarch 25, 2015
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