Question
Consider a project that requires an initial cash outflow of P500,000 with a life of eight years and a salvage value of P20,000 upon its
Consider a project that requires an initial cash outflow of P500,000 with a life of eight years and a salvage value of P20,000 upon its retirement. Annual cash inflow before tax amounts to P100,000 and a tax rate of 30 percent will be applicable. Salvage value is ignored in computing depreciation. Assume the following information about a firm's capital components:
CAPITAL STRUCTURE COST
DEBT P2M 8%
PREFERRED STOCK P2M 11%
COMMON STOCK P6M 14%
Step by Step Solution
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To compute the net cash flow for each year we must consider the tax shield provided by the interest ...
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Corporate Finance
Authors: Jonathan Berk and Peter DeMarzo
3rd edition
978-0132992473, 132992477, 978-0133097894
