Posted by tina on Sunday, May 4, 2008 at 2:39pm.
The company will undertake the training program if NPV is positive and reject the project if NPV is negative.
When the cost of capital is 15% , the NPV can be calculated as :
($8,214.41)
NPV is negative , So the company will not accept the training program.
Here no need to consider the marginal tax rate ( which is given as 40%) as all the cash flows are given as after tax basis .
The company will undertake the training program if NPV is positive and reject the project if NPV is negative.
When the cost of capital is 15% , the NPV can be calculated as :
($8,214.41)
NPV is negative , So the company will not accept the training program.
Here no need to consider the marginal tax rate ( which is given as 40%) as all the cash flows are given as after tax basis .
Calculation based on an after-tax basis. We will subtract the taxes from the initial outlay: 75,000-75,000*0.40 = 45,000.
Calculate the Net Present Value:
End of the Year Actual Dollar Benefit PV interest (15%) Present Value(PV)
0 -45,000 1 -45,000
1 7,500 .86957 6521.775
2 7,500 .75614 5671.05
3 7,500 .65752 4931.40
4 7,500 .57175 4288.125
5 7,500 .49718 3728.85
6 7,500 .43233 3242.475
7 7,500 .37594 2819.55
8 7,500 .3269 2451.75
9 7,500 .28426 2131.95
10 7,500 .24718 1853.85
11 7,500 .21494 4836.15
12. 7,500 .18691 4205.475
13 7,500 .16253 3656.925
14 7,500 .14133 3179.925
15 7,500 .12289 2765.025
16 7,500 .10686 2404.35
17 7,500 .09293 2090.925
18 7,500 .0808 1818
19 7,500 .07026 1580.85
20 7,500 .0611 1374.75
NPV= 20553.15
PV= Actual dollar benefit times INF.
Since NPV is positive, so the project should be accepted