Assume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30% the project is expected revenue by 25,000 each year for the next four years and then the asset will be sold at the end of year four for 5000. Assuming a discount rate of 5% What is the NPV of this project? Assume there is a 30% chance that the discount rate will actually be 10% a 50% chance that it will be 5% and a 20% chance that it will be 4%. What is the weighted average NPV? Would you accept this project? Explain your answers and document your calculations. B IVA LE x 12pt Paragraph 6

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Topic Video
Question
8
ASsume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30%, the project is expected to increase
revenue by 25,000 each year for the next four years and then the asset will be sold at the end of year four for 5000. Assuming a discount rate of 5% What is the NPV of this
project? Assume there is a 30% chance that the discount rate will actually be 10% a 50% chance that it will be 5% and a 20% chance that it will be 4%. What is the weighted
average NPV? Would you accept this project? Explain your answers and document your calculations.
BIV
ALEX x, E
12pt
Paragraph
D&
Transcribed Image Text:ASsume that the initial outlay and depreciable base for a new project is 100,000. It is a 3 year asset for tax purposes and the tax rate is 30%, the project is expected to increase revenue by 25,000 each year for the next four years and then the asset will be sold at the end of year four for 5000. Assuming a discount rate of 5% What is the NPV of this project? Assume there is a 30% chance that the discount rate will actually be 10% a 50% chance that it will be 5% and a 20% chance that it will be 4%. What is the weighted average NPV? Would you accept this project? Explain your answers and document your calculations. BIV ALEX x, E 12pt Paragraph D&
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 4 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education