Monday

April 21, 2014

April 21, 2014

Posted by **Nena** on Sunday, March 3, 2013 at 1:40pm.

Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%.

To receive full credit on this include formulas and calculations used to arrive at financial values.

Guidelines:

• Using the information above

o Prepare a statement showing the incremental cash flows for this project over an 8-year period. (Similar to an income statement)

o Calculate the payback period (P/B), net present value (NPV), IRR and discounted payback period for the project.

o Answer the following questions based on your P/B and NPV calculations:

Do you think the project should be accepted? Why?

Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years.

If the project required additional investment in land and building, how would this affect your decision? Explain.

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