Friday

August 29, 2014

August 29, 2014

Posted by **tina** on Sunday, May 4, 2008 at 2:39pm.

Years 1-10: $7,500 per year

Years 11-20: $22,500 per year

The company has estimated its cost of capital to be 15%. Assume that the entire $75,000 is paid at time zero (the beginning of the project). The marginal tax rate for the firm is 40%. Based on the net present value criterion, should the firm undertake the training program?

- home economics -
**james**, Wednesday, May 6, 2009 at 6:47pmThe 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 .

- home economics -
**Anonymous**, Wednesday, May 6, 2009 at 6:48pmThe 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 .

- home economics -
**Anonymous**, Tuesday, November 30, 2010 at 9:36pmCalculation 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

**Related Questions**

economics - A company is planning to invest $75,000 (before taxes) in a ...

FINN 200 - 12. The Harmon Company manufactures skates. The company’s income ...

Finance 200 - 11. The Sterling Tire Company’s income statement for 2008 is as ...

Finance - If a firm had operating profits of 100,000 taxes of 17,000 interest ...

Finance - P5. Use your knowledge of income statements to fill in the missing ...

Fiance - Use your knowledge of income statements to fill in the missing items: ...

jghjkl - ABC Company has 1,000 employees and wants to increase employee ...

economics - According to the rule for optimal input usage, a firm should hire a ...

Finance - A firm has an opportunity to invest in a new device that will replace ...

economics - A firm that sells e-books – books in digital form downloadable from ...