Calculate the NPV for the Following Capital Budgeting Proposal: $100,000

question 31

Essay

Calculate the NPV for the following capital budgeting proposal: $100,000 initial cost for equipment, straight-line depreciation over 5 years to a zero book value, $5,000 pre-tax salvage value of equipment, 35% tax rate, $45,000 additional annual revenues, $15,000 additional annual cash expenses, $8,000 initial investment in working capital to be recouped at project end, and a cost of capital of 11%. Should the project be accepted or rejected? (Show your work computing the NPV.)

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Definitions:

Outcome

The result or effect of an action, situation, or event, often used to gauge the success or impact of an initiative.

Common Indicator

A measurable variable used across different projects or processes to assess performance, outcomes, or conditions.

Self-Regulation

The ability of individuals or organizations to regulate their behavior or operations in accordance with internal standards or external regulations without the need for external control.

Transparency

The practice of being open, honest, and straightforward about various activities, ensuring accessibility and clarity of information for stakeholders.