A company is planning to invest $75,000 (before taxes) in a personnel training program. The $75,000 outlay will be charged off as an expense by the firm this year (year 0). The returns estimated from the program in the form of greater productivity and a reduction in employee turnover are as follows (on an after-tax basis):Years 1–10: $7,500 per yearYears 11–20: $22,500 per yearThe company has estimated its cost of capital to be 15 percent. Assume that the entire $75,000 is paid at time zero (the beginning of the project). The marginal tax rate for the firm is 40 percent.Based on the NPV criterion, should the firm undertake the training program?

A company is planning to invest $75,000 (before taxes) in a personnel training program. The $75,000 outlay will be charged off as an expense by the firm this year (year 0). The returns estimated from the program in the form of greater productivity and a reduction in employee turnover are as follows (on an after-tax basis):Years 1–10: $7,500 per yearYears 11–20: $22,500 per yearThe company has estimated its cost of capital to be 15 percent. Assume that the entire $75,000 is paid at time zero (the beginning of the project). The marginal tax rate for the firm is 40 percent.Based on the NPV criterion, should the firm undertake the training program?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 6P

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