Acme Storage currently has a revenue of $100,000 per year and is earning a gross profit margin
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Question:
a) Assume a tax rate of 40% and a discount rate of 10%. What is the NPV of the project?
b) What is the NPV of the project if at the end of the third year, the equipment still has a book value of $200,000 after deprecation, but the firm can only sell it on the market for $100,000?
c) Now let us stick to the original assumptions in the problem, do you think the IRR of the investment is higher or lower than 10% (you don't need to calculate the actual IRR)?
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