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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

CAPITAL BUDGETING ANALYSIS The Stanton Stationery Shoppe wants to acquire The Carlysle Card Gallery for $450,000. Stanton expects the merger to provide incremental earnings of about $70,000 a year for 10 years. Carol Stanton has calculated the marginal cost of capital for this investment to be 8%. Conduct a capital budgeting analysis for Stanton to determine whether she should purchase The Carlysle 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 $19,705.70.

Excel spreadsheet:

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