Question
A law firm is considering investing in a complete small business. The intial investment will be 35,000$. The small business is in the 5-year MACRS
A law firm is considering investing in a complete small business. The intial investment will be 35,000$. The small business is in the 5-year MACRS category, and the firm's tax rate is 34%. The small business is expected to provide additional revenue of 15,000$ per year for the next 6 years, and to reduce expenses by 10,000$ per year for the same period.
Depreciation per the 6 years: 7,000 / 11,200 / 6,720 / 4,025 / 4,025 / 2,030
Factors per the 6 years .893 / .797 / .712 / .636 / .567 / .507
1) Calculate the net after-tax cash flow from the investment.
2)Calculate the net present value of the system, given that the law firm's weighter average cost of capital is 12%.
3)Should they invest in the small business?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started