
a)
To determine:
a)

Explanation of Solution
Given information:
Initial investment cost is $200,000
Increase in working capital is $40,000
Tax rate is 40%,
Project’s required
Calculation of net investment:
Calculation of
Formula for calculating net cash flows:
Calculation of net cash flows from year 1 to 5:
Calculation of net cash flows from year 6 to 9:
Calculation of net cash flows from year 10:
Calculation of net cash present value at 15%:
Therefore, net present value at 15% is $143,619
b)
To determine: Net
b)

Explanation of Solution
Calculation of net cash present value at 15%:
Therefore, net present value at 24% is $37,689
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Chapter 11 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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