A company is planning to invest $75,000 (before taxes) in a personnel training program. The $75,000 outlay

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A company is planning to invest $75,000 (before taxes) in a personnel training program. The $75,000 outlay will be charged off as an expense by the firm this year (year 0). The returns estimated from the program in the form of greater productivity and a reduction in employee turnover are as follows (on an after-tax basis):
Years 1–10: $7,500 per year
Years 11–20: $22,500 per year
The company has estimated its cost of capital to be 15 percent. Assume that the entire $75,000 is paid at time zero (the beginning of the project). The marginal tax rate for the firm is 40 percent.
Based on the net present value criterion, should the firm undertake the training program?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Managerial economics applications strategy and tactics

ISBN: 978-1439079232

12th Edition

Authors: James r. mcguigan, R. Charles Moyer, frederick h. deb harris

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