A company is considering a project that will require an investment today of $1,700,000. It...
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A company is considering a project that will require an investment today of $1,700,000. It will produce an after-tax cash flow of $136,000 in year one, an amount that will grow at 4% per year forever. The required rate of return for this project is 11%. a. What is the net present value for this project? Should the project be done? b. What would the net present value be if the after tax cash flows never grow (i.e. remain constant)? Should the project be done in this case? c. What is the minimum rate of growth in the after tax cash flows required to justify doing this project?
A company is considering a project that will require an investment today of $1,700,000. It will produce an after-tax cash flow of $136,000 in year one, an amount that will grow at 4% per year forever. The required rate of return for this project is 11%.
a. What is the net present value for this project? Should the project be done?
b. What would the net present value be if the after tax cash flows never grow (i.e. remain
constant)? Should the project be done in this case?
c. What is the minimum rate of growth in the after tax cash flows required to justify doing this
project?
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