EBK CFIN
EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 10, Problem 13PROB
Summary Introduction

Net present value:

Net present value is the difference between the present values of cash inflows minus present value of cash outflows.

Calculate the cost of retained earnings are as follows:

Net present value=Present value of cash inflowsInitial investment

Decision rule:

NPV>0 Accept the projectNPV<0 Reject the project

EC is considering to replace an asset with new one which has cost of $37,500 and old machine has book value of $8,300. Asset is classified under three years MACRS class and can be sold after three years for 6,000. Savings from the machine is $14,300. Life of the project is 3 years, tax rate is 40% and required rate of return is 11%.

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