Question
In: Finance
What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600, the firm is profitable, has a 15 percent tax rate and employs a 12 percent cost of capital?
What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600, the firm is profitable, has a 15 percent tax rate and employs a 12 percent cost of capital?
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A) NPV decreases by $178.23 |
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B) NPV decreases by $113.04 |
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C) NPV decreases by $151.78 |
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D) NPV decreases by $200.00 |
Solutions
Expert Solution
If the fixed cost are increased by 200 then, we will discount the cost at present with the cost of capital and since it is just given that it is a fixed cost I will not be assuming that it is tax exempt.
Net present value will be decreasing by= ((600-400)/1.12)
All the other options are false.
Correct answer will be options (A) $178.24
jeff jeffy answered 1 year agoRelated Solutions
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0
1
2
3
4
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rejected
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Year 0
Year 1
Year 2
Year 3
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-100.000
70.000
120.000
200.00
If the discount rate changes from 12% to 15%, what is the CHANGE
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