J.B. Enterprises is considering the purchase of new equipment with a cost of $1,000,000. If the equipment is purchased, the incremental net cash flows are expected to be $300,000 per year for five years. These net cash flows already reflect the of the equipment and the company’s 40% tax rate. However, there are liability risks associated with the use of this product. The board of directors estimates a “cost of worry” of $25,000 per year. Calculate the net present value of this project incorporating the cost of worry if the company’s cost of capital is 10%. a. $42,466 b. $340,909 c. $375,000 d. $61,420
J.B. Enterprises is considering the purchase of new equipment with a cost of $1,000,000. If the equipment is purchased, the incremental net cash flows are expected to be $300,000 per year for five years. These net cash flows already reflect the of the equipment and the company’s 40% tax rate. However, there are liability risks associated with the use of this product. The board of directors estimates a “cost of worry” of $25,000 per year. Calculate the
a. $42,466
b. $340,909
c. $375,000
d. $61,420
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