Question
Two mutually exclusive proposals (Project D and Project J) will be analyzed using a 12.5% discount rate. Marginal tax rate of the company is 40%.
Two mutually exclusive proposals (Project D and Project J) will be analyzed using a 12.5% discount rate. Marginal tax rate of the company is 40%. The information on Project D (investment horizon = 6 years) is below (amount in $ thousands). If Project D were financed 50 percent by debt (at a coupon rate of 8%), the net income (in thousands) for the first year would be closest to:
Information on Project D:
Initial fixed capital outlay (including 5,000 allocated to land) = 30,000
Increase in net working capital (all of this will be recovered at the end of the project) = 20,000
Annual sales revenues (cash) = 50,000; Annual operating costs (cash) = 30,000; Annual depreciation = 1,000
Salvage value (book) at end of investment horizon = 24,000
Salvage value (market) at end of investment horizon = 22,000
Question 5 options:
| 10,635 |
| 10,680 |
| 10,125 |
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