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What is the best estimate of the discount rate

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Question - A sole proprietor intends to borrow $30,000 at an interest rate of 10% p.a. to purchase new equipment that will generate cash flows before tax of $7,500 per year for 5 years. Depreciation for tax purposes is straight line to zero (i.e. 20% per year). The sole proprietor has a marginal income tax rate of 40%. On the information available what is the best estimate of the discount rate to be used in evaluating this capital budgeting project?

Reference no: EM133050602

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