Consider the cash flows on two mutually exclusive projects

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Reference no: EM131020395

1. An asset is used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $8,600,000 and will be sold for $1,890,000 at the end of the project. If the tax rate is 35 percent, what is the after-tax salvage value of the asset?

2. Consider the following cash flows on two mutually exclusive projects. Year Project A Project B 0 -54,000 -64,000 1 26,000 29,000 2 32,000 38,000 3 19,000 23,000 The cash flows of Project A are expressed in real terms which those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose?

Reference no: EM131020395

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