HomeworkLib
Question

A business idea requires to spend $20,000 on training the staff this year and will save...

  1. A business idea requires to spend $20,000 on training the staff this year and will save $1,000 a every year afterwards (because the staff is more productive).
    1. Will the firm implement the idea if the interest rate is 4%? Explain.
    2. Will the firm implement the idea if the interest rate is 8%? Explain.
    3. At what interest rate is the firm indifferent between implementing the idea and abandoning it? Explain.
business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a. If the interest rate is 4%, then the net present value is NPV = -20,000 + 1,000/0.04 = 5,000, so the firm will implement the idea.

b. If the interest rate is 8%, then the net present value is NPV = -20,000 + 1,000/0.08 = -7,500, so the firm will not implement the idea.

c. The firm is indifferent between implementing the idea and abandoning it if NPV = 0, so the interest rate is: IRR = 1,000/20,000×100% = 5%.

0 0
Add a comment
Know the answer?
Add Answer to:
A business idea requires to spend $20,000 on training the staff this year and will save...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Chapter 14 Running Case Assignment: Improving Decision Making: Using Spreadsheet Software to Analyze the Return on...

    Chapter 14 Running Case Assignment: Improving Decision Making: Using Spreadsheet Software to Analyze the Return on a New System Investment Software skills: Spreadsheet formulas and functions Business skills: Capital budgeting This project provides you with an opportunity to use spreadsheet software to use the capital budgeting models discussed in this chapter to analyze the return on a new information system investment for a real-world company. Dirt Bikes's management would like to analyze the return on its investment in its employee...

  • Redlands, Inc. began business on January 1, 2013. The firm initially capitalized its operations by issuing...

    Redlands, Inc. began business on January 1, 2013. The firm initially capitalized its operations by issuing 12 shares of common stock with a $1 par value at $8 per share. On July 1, 2013, Redlands issued a $100, ten-year, term bond. Redlands received only $80 in cash by issuing the bond because the stated rate of interest on the bonds was 8%, but the market rate of interest was more than 8% on July 1, 2013. The bond contract requires...

  • need Everything. Problem 3-2° ( Beamer Business Year 2020 Chris opened a Beamer business on January...

    need Everything. Problem 3-2° ( Beamer Business Year 2020 Chris opened a Beamer business on January 1, 2020. She started with $600,000; 400,000 of her own money, for which she received 4,000 shares of common stock, and $200,000 borrowed from her Uncle Phil (Note Payable). The Note Pavable to Uncle Phil requires that she pay the interest at 4% annually on December 31. She paid the $8,000 interest on December 31, 2020. She is required to repay the principal at...

  • Question 1 Answer 1(a) & 1(d) Your company is considering a new 3-year project that requires...

    Question 1 Answer 1(a) & 1(d) Your company is considering a new 3-year project that requires an initial investment in equipment of $3 million. Prior to this, you had engaged a consultant to study the feasibility of the new project and after an extensive market survey, the consultant confirmed your belief that the project would be viable. Your company is charged $100,000 for the feasibility study. The equipment will be depreciated straight line to zero over the 3 years of...

  • Drivers for private truck fleets log about 20,000 miles a year. They drive 82 percent of...

    Drivers for private truck fleets log about 20,000 miles a year. They drive 82 percent of all medium-duty and heavy-duty vehicles in the United States and account for 52 percent of the total miles traveled by commercial motor vehicles (CMVs). “The way these employees drive,” says veteran industry journalist Mike Antich, “can either increase or decrease fuel economy and greenhouse gas emissions. If you change driving behavior, you have a direct impact on the amount of fuel consumed and the...

  • 1.1 HRM as a function and HR Managers and key staff personnel have a vital role...

    1.1 HRM as a function and HR Managers and key staff personnel have a vital role in the successful operation of a firm. Based on the information provided below, describe how the Brand Ambassador program affected or supported various functions of HRM. HOW 'THE COMPANY' DEVELOPED A BRAND AMBASSADOR PROGRAM At 'THE COMPANY' we usually categorize Employment Brand at THE COMPANY'  into four big ‘buckets’: candidate experience, brand ambassador programs, messaging, and online presence. The truth is the brand ambassador component...

  • RADICO’S CHALLENGE The executive staff at Radico Corporation was quite pleased with the one-day training program...

    RADICO’S CHALLENGE The executive staff at Radico Corporation was quite pleased with the one-day training program they attended on the benefits of using agile and Scrum on some of their projects. Radico provided products and services to both public and private sector clients, almost all of it through competitive bidding. IT was not required for any of the products and services Radico provided. Agile and Scrum had proven to be successful on internal IT projects, but there were some concerns...

  • Summarize Article below: The term capital investment has two usages in business. First, capital investment refers...

    Summarize Article below: The term capital investment has two usages in business. First, capital investment refers to money used by a business to purchase fixed assets, such as land, machinery, or buildings. Secondly, capital investment refers to money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business's day-to-day operating expenses. For example, to purchase additional capital assets a growing business may need to seek a...

  • Exhibit 1:   Sales and Cost Forecast The sales forecast is based on projected levels of demand....

    Exhibit 1:   Sales and Cost Forecast The sales forecast is based on projected levels of demand. All the numbers are expressed in today’s dollars. The forecasted average inflation per year is 3.0% Price per bus $220,000 Units sold per year 11,000 Labor cost per bus $50,000 Components & Parts per bus $95,000 Selling General & Administrative (fixed) $250,000,000 NOTE: Average warranty cost per year per bus for the first five years is $1,000. The present value of this cost will...

  • I only need part C solved as that is where I am stuck. if it could...

    I only need part C solved as that is where I am stuck. if it could be done in steps showing how to get to the final answer that would be very helpful. I am posting for a second time because the first time it was answered here the anon put just the final answers. OL: (17 points) Magnum Inc. is considering a new project, requiring an initial investment of SI million today. Assume the asset will be fully depreciated...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT