Troy Batkin, the chief executive officer of Batkin Corporation, has assembled his top advisers to evaluate an
Troy Batkin, the chief executive officer of Batkin Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $400,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following.
Mr. Batkin agrees with his advisers that the company should use the discount rate (required rate of return) of 7 percent to compute net present value to evaluate the viability of the proposed project.
Round your computation to the nearest whole dollar.
a. Compute the net present value of the proposed project. Should Mr. Batkin approve the project?
b. Ruchin Oruh, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax deductible. The depreciation is expected to be $80,000 per year for the four-year period. The companyâ€™s income tax rate is 30 percent per year. Use this information to revise the companyâ€™s expected cash flow from this project.
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... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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