The Brassy Fin Pet Shop is considering an expansion. Construction will cost $90,000 and will be depreciated

Question:

The Brassy Fin Pet Shop is considering an expansion. Construction will cost $90,000 and will be depreciated to zero, using straight-line depreciation, over five years. Earnings before depreciation are expected to be $20,000 in each of the next five years. The firm’s tax rate is 34 percent.

a. What are the project’s cash flows?

b. Should the project be undertaken if the firm’s cost of capital is 11 percent?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...