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Two Finance problems




Question;Problem 1A company is planning to invest $100,000 (before tax) in a personnel training program. The $100,000 outlay will be charged off as an expense by the firm this year (year 0). The returns from the program in the form of greater productivity and a reduction in employee turnover are estimated as follows (on an after-taxbasis):Years 1?10: $10,000 per yearYears 11?20: $22,000 per yearThe company has estimated its cost of capital to be 12 percent. Assume that the entire $100,000 is paid at time 0 (the beginning of the project). The marginal taxrate for the firm is 40 percent. Should the firm undertake the training program? Why or why not?Problem 2Two projects have the following expected net present values and standard deviations of net present values:Project Expected Net Present Value Standard DeviationA $50,000 $20,000B 10,000 7,000a. Using the standard deviation criterion, which project is riskier?b. Using the coefficient of variation criterion, which project is riskier?c. Which criterion do you think is appropriate to use in this case? Why?


Paper#49445 | Written in 18-Jul-2015

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