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. A project will return 15% with certainty one year from now. The initial investment is...

  1. . A project will return 15% with certainty one year from now. The initial investment is $5,000. The appropriate marginal tax rate is 42%. The equivalent tax-exempt bond yields 4% and the equivalent taxable bond yields 8%. What is the NPV of this project?
  2. Consider a project with a single cash flow of $1000 which will occur 10 years from now. There is no initial cost. The cost of capital is 15%. In this case, is it worse to commit a 10% error in estimating the cash flow, or to commit a 10% error in estimating the cost of capital?

Solutions

Expert Solution

We can calculate the Net Present value using the cash flow received for the period and the rate of return from other investments

(2) Considering a project with a single cash flow of $1000 which will occur 10 years from now and committing either 10% error in estimating the cash flow or a 10% error in estimating the cost of capital, we can say that it can be worse to commit a 10% error in estimating the cost of capital

jeff jeffy answered 1 year ago
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