A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net

Question:

A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero and has a (marginal) income tax rate of 40 percent. The firm’s is 12 percent.
a. Compute the and the .
b. Should the firm accept or reject the project?

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