Ashley Ardern has been researching a vaccine for Covid-19. The cost of the research efforts has already amounted to $500,000. If Ashley Ardern carries on the research efforts additional lab space and equipment will need to be purchased for $1,000,000 to ensure adequate social distancing is maintained. At the end of a 2 year period, it is estimated that the salvage value of the equipment will be $0. The results of the research are expected to result in a vaccine that will generate positive cash flows for two years. The estimated after-tax operating cash inflows are $572,000 in year 1 and $744,000 in year 2. The operating cash flows are earned evenly throughout the year. Additional working capital of $100,000 will be required at the start of the project. The company has an after-tax required rate of return of 10% per annum. Question: All cash flows should be included in the net present value calculation. True True, except for $500,000, a sunk cost. True, except for $500,000, the day one funding. True, except for $500,000, an opportunity cost. Why might management prefer equity financing to debt financing? Equity financing is usually cheaper. Dividend payments are tax deductible. o o o o Debt has to be repaid. A company is more successful if they only have equity financing. What is earning interest on interest? Compound interest. Savings. Accounting Rate of Return. Investing