Consider a project lasting one year only. The initial outlay is $2,200 and the e

Question

Consider a project lasting one year only. The initial outlay is $2,200 and the expected inflow is $2,400. The opportunity cost of capital is r = 0.22. The borrowing rate is rD = 0.12, and the tax shield per dollar of interest is Tc = 0.35.

What is the project

Consider a project lasting one year only. The initial outlay is $2,200 and the expected inflow is $2,400. The opportunity cost of capital is r = 0.22. The borrowing rate is rD = 0.12, and the tax shield per dollar of interest is Tc = 0.35.

Explanation / Answer

Soln :

NPV1 = CF1 / (1+0.34)1 = 2400 / 1.34 = 1,791.04

NPV of the cash flows = - initial outlays+ Present value of cash inflows X tax rate

project

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