A project requires an initial investment of $100,000 to purchase equipment. The equipment will be depreciated on
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- A project requires an initial investment of $100,000 to purchase equipment. The equipment will be depreciated on a straight-line basis over the five-year life of the project. The company expects the project to generate $50,000 of additional revenue per year and $15,000 of additional expenses per year. Management is also concerned about potential product liability losses. The company's risk manager developed the following annual loss distribution:
Loss Amount Probability
$0 70%
$5,000 20%
$10,000 8%
$50,000 2%
- Calculate the project's net present value assuming the company has a required return of 10% and faces a marginal tax rate of 40%.
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
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