You are considering an investment in a new sub-industry of interest to your firm. The project...

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You are considering an investment in a new sub-industry ofinterest to your firm. The project requires an initial outlay of$200,000. In addition, after-tax cash flows for years one throughsix will be $25,000 per year. The appropriate discount rate forthis project is 12 percent. Your firm is not interested to continuewith this project after the 6thyear, therefore, at the end of theproject’s life, the firm is expected to liquidated this project andreceive an addition after-tax inflow of $65,000. Will you accept orreject this project?

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Solution The Net Present value of the investment in See Answer

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You are considering an investment in a new sub-industry ofinterest to your firm. The project requires an initial outlay of$200,000. In addition, after-tax cash flows for years one throughsix will be $25,000 per year. The appropriate discount rate forthis project is 12 percent. Your firm is not interested to continuewith this project after the 6thyear, therefore, at the end of theproject’s life, the firm is expected to liquidated this project andreceive an addition after-tax inflow of $65,000. Will you accept orreject this project?