When we learned CPV analysis in Chapter 3, we calculated the amount of pretax profit needed to achieve a given level of after-tax profit. We could calculate a pretax rate of return given an after-tax rate of return. Why would it be inappropriate to use a pretax discount rate in capital budgeting? (For example, if a firm requires an after-tax return of 10% and has a marginal income tax rate of 50% why not use a 20% pretax rate of return and ignore the separate income tax calculations?)
Answer to relevant QuestionsAs the time period for an NPV analysis gets longer, what happens to each incremental present value factor? Refer to a present value chart. At 15% interest, beyond what year do the discount factors get so small that very ...A. What is the present value of $8,000 received in 7 years at 8% interest? B. Bonnie Lee buys a savings bond for $125. The bond pays 6% and matures in 10 years. What amount will Bonnie receive when she redeems the bond?C. ...Lymbo Company, Inc., must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $100,000 to install and $20,000 to maintain ...How might inflation influence a decision to acquire an asset now rather than later?Cy Keener, president of the Carbondale Architectural Design Group, is considering an investment to upgrade his current computer-aided design equipment. The new equipment would cost $110,000, have a 6-year useful life, and ...
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