The after-tax cost of capital is 8%. A project costing $60,000 will be expected to earn cash profits of $40,000 in year 1 and $50,000 in year 2. Taxation at 30% occurs one year in arrears of the profits or losses to which they relate. For the purpose of this exercise, assume that the cost of the project is not an allowable cost for tax purposes (i.e. capital allowances should be ignored). Required Calculate the NRW of the project
The after-tax cost of capital is 8%. A project costing $60,000 will be expected to earn cash profits of $40,000 in year 1 and $50,000 in year 2. Taxation at 30% occurs one year in arrears of the profits or losses to which they relate. For the purpose of this exercise, assume that the cost of the project is not an allowable cost for tax purposes (i.e. capital allowances should be ignored). Required Calculate the NRW of the project
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
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Transcribed Image Text:Question 1
The after-tax cost of capital is 8%. A project costing $60,000 will be expected to earn cash profits of
$40,000 in year 1 and $50,000 in year 2. Taxation at 30% occurs one year in arrears of the profits or
losses to which they relate. For the purpose of this exercise, assume that the cost of the project is not an
allowable cost for tax purposes (i.e. capital allowances should be ignored).
Required
Calculate the NPV of the project.
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