Question

Basic capital budgeting problem with straight-line depreciation. The Roberts Company has cash inflows of $140,000 per year on project A and cash outflows of $100,000 per year. The investment outlay on the project is $100,000. Its life is 10 years. The tax rate, τc,is 40%. The opportunity cost of capital is 12%.

Answer 1

The question involves a capital budgeting analysis with cash inflows of $140,000, outflows of $100,000, initial investment of $100,000, project lifespan of 10 years, 40% tax rate, and 12% opportunity cost.

Step-by-step explanation:

The student's question concerns a basic capital budgeting problem involving straight-line depreciation, cash inflows, and outflows, investment outlay, tax rates, and the opportunity cost of capital. When considering this capital budgeting problem, the company has cash inflows of $140,000 per year and cash outflows of $100,000 per year, with an initial investment of $100,000. The life of the project is expected to be 10 years, with a 40% tax rate and an opportunity cost of capital of 12%. The analysis of this scenario would include calculating the net present value (NPV), internal rate of return (IRR), payback period, and profitability index to determine the project's financial viability.