Columbus Company Is Considering a Project That Requires an Initial

question 121

Essay

Columbus Company is considering a project that requires an initial investment of $400,000. Its incremental cash flows are expected to be $150,000 per year for five years. The project would be depreciated on a straight-line basis over 5 years with no expected salvage value. The company has a stated policy that all projects must return their required investment dollars within the first 75% of the project's life. The company is subject to a 40% income tax rate, and its cost of capital is 10%.Required:
1) Compute the project's after-tax net cash flows (NCF) by completing the following table:
2) Compute the project's net present value by completing the following table. (Round the present value amounts to the nearest whole number.)3) Compute the project's payback period.4) Should the project be accepted? Why or why not?
$$\begin{array} { | c | c | c | c | c | c | } \hline & \text { Cash } & & \text { Taxable } & \text { Cash Outflow } & \text { After-tax } \\\hline \text { Year } & \text { Inflows } & \text { Depreciation } & \text { Income } & \text { for Taxes } & \text { NCF } \\\hline 1.5 & & & & & \\\hline\end{array}$$ $$\begin{array} { | c | c | c | c | } \hline & \text { After-tax } & \text { Present Value } & \text { Total } \\\hline \text { Year } & \text { NCF } & \text { Factor } & \text { Present Value } \\\hline 0 & & & \\\hline 1.5 & & & \\\hline\end{array}$$

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Definitions:

Ideal Choice

A decision-making process aiming to select the best possible option based on specific criteria or values.

Decision Making

The cognitive process of selecting a course of action from multiple alternatives, often involving judgment or reasoning.

Perceived Value

The worth or significance a consumer assigns to a product or service, often based on how well it satisfies their needs and preferences.

Magazine Advertisement

A marketing message or campaign found within a magazine, used to promote products, services, or ideas.