Question

QUESTION 4 Assume a firm has a cost of capital of 9% and the following cash flows. Compute the NPV of the project. Reminder, keep the negative if you answer comes negative since that indicates the project is unprofitable. Year Cash Flow -60 30 20 50 10 QUESTION 5 If the tax rate is 40%, what are the net proceeds from selling an asset for $90,000? Assume the asset originally had a book value of $30,000.

Answer 1

-60 1 4 Computation of NPV of project Year Cash flows PVIF @ 9% Present value of cash flows 0 -60 1 30 0.9174312 27.52293578 2 20 0.84168 16.83359987 3 50 0.7721835 38.609174 4 10 0.7084252 7.084252111 NPV 30.04996176 NPV = 30.05 (Rounded) Since NPV is positive, it is better to accept the project. 5 Tax rate = 40% Sale value of asset = $90,000 Book value = $30,000 Gain on sale = Sale value - Book value = $90,000 - $30,000 = $60.000 Tax on gain on sale of asset = Gain on sale * Tax rate = $60.000 * 40% = $24,000 Net sale proceeds from asset = Sale value - Tax on gain on sale of asset $90,000 - $24.000 = $66.000 Ans : 66,000