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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

CAPITAL BUDGETING ANALYSIS The Stanley Stationery Shoppe wants to acquire The Carlson Card Gallery for $400,000. Stanley expects the merger to provide incremental earnings of about $64,000 a year for 10 years. Ken Stanley has calculated the marginal cost of capital for this investment to be 10%. Conduct a capital budgeting analysis for Stanley to determine whether he should purchase The Carlson Card Gallery.

Summary Introduction

To Determine: Conducting a capital budgeting analysis for Company SSS on whether the company should purchase Company CCG.

Introduction: Capital budgeting is a technique for examining and contrasting significant future investments and overheads to decide on the suitable and profitable investment.

Explanation

Determine the net present value of the investment

Using a excel spreadsheet, the net present value of the investment is determined as -$6,747.71.

Excel spreadsheet:

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