Suppose we are thinking about renovating a leased office. The renovations would cost $364,000. The renovations will

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Suppose we are thinking about renovating a leased office. The renovations would cost $364,000. The renovations will be depreciated straight-line to zero over the five-year remainder of the lease. The new office would save us $36,000 per year in heating and cooling costs. Also, absenteeism should be reduced and the new image should increase revenues. These last two items would result in increased operating revenues of $43,000 annually. The tax rate is 36 percent, and the discount rate is 13 percent. Strictly from a financial perspective, should the renovations take place?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Fundamentals of Corporate Finance

ISBN: 978-0071051606

8th Canadian Edition

Authors: Stephen A. Ross, Randolph W. Westerfield

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