Reference no: EM132550850
Question - SWE Inc. must choose between two business opportunities:
Opportunity 1 will generate $40,000 before-tax cash flow in years 0, 1, and 2, with a $7,000 annual tax cost.
Opportunity 2 will also generate $40,000 before-tax cash flow in years 0, 1, and 2. However, the tax cost will be $15,000 in year 0, $2,500 in year 2, and $2,500 in year 3.
The company uses a 6% discount rate to determine net present value.
Requirements -
(1) Determine the NPV of opportunity 1 (round to nearest dollar).
(2) Determine the NPV of opportunity 2 (round to nearest dollar).
(3) Determine which opportunity the company should pick.
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