Pedro's Plumbing uses an interest rate of 20% to evaluate new inve ment projects. The...
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Pedro's Plumbing uses an interest rate of 20% to evaluate new inve ment projects. The company is considering a new in-store security syste for its Carlton Place branch. The system is budgeted to cost $654,90 The cost will be depreciated over its expected useful life of five years. T new system should increase cash flows by reducing stock shrinkage $200,000 per year for five years. Because the project is considered to low risk, it has been suggested that it be evaluated using an interest ra of 14%, not 20%. Required (a) Calculate the net present value at the normal rate of 20%. (b) Calculate the net present value at the low risk rate of 14%. (c) What would happen if the project were to be evaluated at a rate 16%
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