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capital budgeting and tax rates

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solution


Question

he Capital Budgeting Decision;[A] Explain why firms do not consider sunk costs in capital budgeting decisions?;[B] If a firm faces a capital constraint explain how this may negatively impact shareholder wealth maximization?;[C] A new machine costing $200,000 is expected to save the Company B $25,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm?s marginal tax rate is 40 percent.;What are the annual net cash flows associated with the purchase of this machine?;Compute the net investment (NINV) for this project?

 

Paper#18253 | Written in 18-Jul-2015

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