A firm must decide between two designs A and B. Their effective income rate is 50%. If the desiredafter-tax return on investment is 8% per year, which alternative should be chosen? *Use repeatabilityassumption and AW method. Detail analysis is required* (20%)1BCapital investment40000MV at end of useful life4000Annual expenses2500Depreciation methodMACRS (GDS) With 5-year recovery periodUseful life (in years)8A3000060003000SL to zero book value over5 years6

Explanation : NPV method is a capital budgeting technique which help in decision making of project…

A firm must decide between two designs A and B. Their effective income rate is 50%. If the desired after-tax return on investment is 8% per year, which alternative should be chosen? *Use repeatability assumption and AW method. Detail analysis is required* (20%) A B Capital investment 30000 40000 MV at end of useful life 6000 4000 Annual expenses 3000 2500 Depreciation method SL to zero book value over 5 years MACRS (GDS) With 5- year recovery period Useful life (in years) 6 8

A firm must decide between two designs A and B. Their effective income rate is 50%. If the desired after-tax return on investment is 8% per year, which alternative should be chosen? Use repeatability assumption and AW method. Detail analysis is required (20%) A B Capital investment 30000 40000 MV at end of useful life 6000 4000 Annual expenses 3000 2500 Depreciation method SL to zero book value over 5 years MACRS (GDS) With 5- year recovery period Useful life (in years) 6 8

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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