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What is the Net Present Value (NPV) of the yearly (annual) capital budgeting cost?

What is the Net Present Value (NPV) of the yearly (annual) capital budgeting cost?

Essentials Of Investments
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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**Capital Budgeting Assumptions** To calculate the Net Present Value (NPV) of the yearly capital budgeting costs, consider the following assumptions: 1. **Old System Costs:** - Yearly operating cost: $21,000 - Yearly depreciation cost: $2,000 - Yearly maintenance cost: $12,000 - Yearly tax payment: $7,000 2. **New System Costs:** - Yearly operating cost: $15,000 - Yearly depreciation cost: $3,500 - Yearly maintenance cost: $13,500 - Yearly tax payment: $9,000 3. **Financial Parameters:** - Tax Rate: 25% - Discount Rate: 15% 4. **Investment Details:** - Initial Project Investment: $45,000 - Project Life: 6 years **Challenge:** Calculate the Net Present Value (NPV) of the yearly (annual) capital budgeting cost using the above data.
Transcribed Image Text:**Capital Budgeting Assumptions** To calculate the Net Present Value (NPV) of the yearly capital budgeting costs, consider the following assumptions: 1. **Old System Costs:** - Yearly operating cost: $21,000 - Yearly depreciation cost: $2,000 - Yearly maintenance cost: $12,000 - Yearly tax payment: $7,000 2. **New System Costs:** - Yearly operating cost: $15,000 - Yearly depreciation cost: $3,500 - Yearly maintenance cost: $13,500 - Yearly tax payment: $9,000 3. **Financial Parameters:** - Tax Rate: 25% - Discount Rate: 15% 4. **Investment Details:** - Initial Project Investment: $45,000 - Project Life: 6 years **Challenge:** Calculate the Net Present Value (NPV) of the yearly (annual) capital budgeting cost using the above data.
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