You are planning to invest $15,000 in research & development (R&D). This investment will generate cost savings of $10,500 in year 1 and $7,500 in year 2. After 2 years, the salvage value is zero. The cost of capital is 25% a year.

a) Compute the net present value. Should you invest?

b) Following a government stimulus program, the cost of capital decreased to 10% a year. Compute the net present value at the new cost of capital.

Answer rating: 100% (QA)

a To compute the net present value NPV we need to discount the future cash flows ... View the full answer