Calculate the maximum amount , Business Economics

Tri-City Industries is considering two possible capital projects. Project A requires an initial investment of $240,000 and provides cash flows before tax of $120,000 in year one, $140,000 in year two, and $160,000 in year three. If project A is accepted, project B may be undertaken. It provides cash flows before tax of $140,000 for each of three years. However, projects A and B are partial substitutes, and the cash flows of project A will decrease by $40,000 in each of the three years if project B is also undertaken. The company's weighted average cost of capital is 13% and its tax rate is 35%. Ignore the impact of depreciation for this question.

a. What is the NPV of doing only project A? 

b. What is the maximum amount that project B can cost so that the combination of taking both projects provides the same benefit of investing only in project A?

 

 

Posted Date: 2/28/2013 6:45:13 AM | Location : United States







Related Discussions:- Calculate the maximum amount , Assignment Help, Ask Question on Calculate the maximum amount , Get Answer, Expert's Help, Calculate the maximum amount Discussions

Write discussion on Calculate the maximum amount
Your posts are moderated
Related Questions
What do you believe are the consequences of a rating downgrade?

Discuss Morality in international context

define scarcity and opportunity cost? what role these two concepts play in the making of decision making?


What are the difficulties of Developing Economies? Problems of Developing Economies: • Internal and external difficulties limit LDCs opportunity for development. • Les

i want information about the theory of supply

Do all developing economies have same underlying problems? Less developed countries are similar but exceptional. The impact of a problem will vary depending upon circumstances

Question The Borneo Shop imports and sells a popular Blue Ray DVD player. The following current information about the business is available:           Selling price per play

the basic assumption of the static model

How less developed countries cannot economies grow by developing services as tourism? Less developed countries cannot economies grow by developing services as tourism if: Ga