New business will be 750000 which will depreciate

Info icon This preview shows pages 3–4. Sign up to view the full content.

View Full Document Right Arrow Icon
new business will be $750,000 which will depreciate evenly over the course of 5 years, meaning depreciation costs will be $150,000 per year. With a static tax rate at 37%, and a cost of capital of 12%, the business created a spreadsheet with the following information and can decide if this investment will be worth it. With sales and expenses estimated, the business can see that there is a net income of $150,000 each year before taxes. After the taxes of 37% are deducted, the net income becomes $94,500 per year. With this value, the business can calculate the payback period as well as the net present value. The payback period is known as the amount of time taken for the business to see a full return on its initial investment (Investopedia, n.d.). The net present value is defined as the difference between the current value of the cash flow coming into the business and the current value of the cash flow going out through the discount rate of the business (Business Dictionary, n.d.).
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern