Business, 16.03.2020 16:42 aly95

It has been proposed that a company invest $1 million of its own funds in a venture which will yield a gross income of $1 million per year. The total annual costs will be $800,000 per year. In an alternative proposal, the company can invest a total of $600,000 and receive annual net earnings of $220,000 from the project. The remaining $400,000 can be loaned at an effective 6% annual interest rate. Calculate the cash flows of each option and determine the more profitable alternative for the company with regards to investing its available funds. Assume a constant depreciation rate of 20% per year and an income tax rate of 35%.

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It has been proposed that a company invest $1 million of its own funds in a venture which will yield...

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