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20. Consider that the following project requires an investment of $7,500 at time =0 and it has the following rating) cash flows and (after-tax) abandonment (salvage) values over its useful life of 5 years: (Operating) Cash Flows Year 12345 $2,000 2 $2,000 3 $2,000 4 $2,000 $1,500 Abandonment Value $6,200 $5,200 $4,000 $2,200 $0 5 Assume that the appropriate cost of capital is 10%. What is the optimal economic life of this project? a. 1 year b. 2 years c. 3 years d. 4 years e. 5 years

20. Consider that the following project requires an investment of $7,500 at time =0 and it has the following rating) cash flows and (after-tax) abandonment (salvage) values over its useful life of 5 years: (Operating) Cash Flows Year 12345 $2,000 2 $2,000 3 $2,000 4 $2,000 $1,500 Abandonment Value $6,200 $5,200 $4,000 $2,200 $0 5 Assume that the appropriate cost of capital is 10%. What is the optimal economic life of this project? a. 1 year b. 2 years c. 3 years d. 4 years e. 5 years

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 12P
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20. Consider that the following project requires an investment of $7,500 at time =0 and it has the following rating) cash flows and (after-tax) abandonment (salvage) values over its useful life of 5 years: (Operating) Cash Flows Year 12345 $2,000 2 $2,000 3 $2,000 4 $2,000 $1,500 Abandonment Value $6,200 $5,200 $4,000 $2,200 $0 5 Assume that the appropriate cost of capital is 10%. What is the optimal economic life of this project? a. 1 year b. 2 years c. 3 years d. 4 years e. 5 years
Transcribed Image Text:20. Consider that the following project requires an investment of $7,500 at time =0 and it has the following rating) cash flows and (after-tax) abandonment (salvage) values over its useful life of 5 years: (Operating) Cash Flows Year 12345 $2,000 2 $2,000 3 $2,000 4 $2,000 $1,500 Abandonment Value $6,200 $5,200 $4,000 $2,200 $0 5 Assume that the appropriate cost of capital is 10%. What is the optimal economic life of this project? a. 1 year b. 2 years c. 3 years d. 4 years e. 5 years
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