The Biological Insect Control Corporation (BICC) has hired you as a consultant to evaluate the NPV of
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Revenues ....... $265,000
Labor costs ...... 185,000
Other costs ...... 55,000
The company will lease machinery for $90,000 per year. The lease payments start at the end of Year 1 and are expressed in nominal terms. Revenues will increase by 4 percent per year in real terms. Labor costs will increase by 3 percent per year in real terms. Other costs will increase by 1 percent per year in real terms. The rate of inflation is expected to be 6 percent per year. BICC’s required rate of return is 10 percent in real terms. The company has a 34 percent tax rate. All cash flows occur at year-end. What is the NPV of BICC’s proposed toad ranch today?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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