Consider a project that requires an initial cash outflow of P500,000 with a life of eight years and a salvage value of P20,000 upon its retirement. Annual cash inflow before tax amounts to P100,000 and a tax rate of 30 percent will be applicable. Salvage value is ignored in computing depreciation. Assume the following information about a firm's capital components:

CAPITAL STRUCTURE COST

DEBT P2M 8%

PREFERRED STOCK P2M 11%

COMMON STOCK P6M 14%

Answer rating: 100% (QA)

To compute the net cash flow for each year we must consider the tax shield provided by the interest ... View the full answer