Specialized Consulting Service Company's after-tax net cash flows associated with two mutually exclusive projects, Alpha and Beta,
Question:
Specialized Consulting Service Company's after-tax net cash flows associated with two mutually exclusive projects, Alpha and Beta, are as follows:
a. Calculate the net present value for each project using discount rates of 0, 0.04, 0.08, 0.12, 0.15, 0.20, and 0.25.
b. Prepare a graph as follows. Label the vertical axis ‘‘net present value in Dollars'' and the horizontal axis ‘‘Discount Rate in Percent per Year.'' Plot the net present value amounts calculated in part a. for project Alpha and project Beta.
c. State the decision rule for choosing between projects Alpha and Beta as a function of the firm's cost of capital.
d. What generalizations can you draw from thisexercise?
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...
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Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil