ECO 550Week 10 DQ

Week 10 – Discussion

"Long-Term Investment and Cost-Benefit Analysis" Please respond to the following:

From the scenario for Katrina’s Candies, suggest one (1) method in which Herb could use a cost-benefit analysis to argue for or against an expansion.
Create three (3) optimal decision rules for Katrina’s Candies (e.g., whether to hire more staff or hire temporary workers to meet production schedules).
Assess both the short-term and the long-term costs and benefits of obtaining a graduate degree. Support your decision to obtain a graduate degree with a cost-benefit analysis of your particular situation.

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Optional Question #1. (can substitute for one of the prompts above): Calculate the IRR and NPV for the following capital project: The initial outlay is $700,000.00. The Net Cash Flow (after taxes and depreciation) is constant at $118,861.00 for 10 years. The salvage value is zero. The required rate of return or discount rate is 9%. Is this capital project worthy of consideration?

Optional Question #2: A machine costs $12,000 and is expected to operate for 10 years. The estimated salvage value is zero. It will save the company $2,500 per year before taxes and depreciation. The company depreciates its assets on a straight-line basis and has a marginal tax rate of 40 percent. If the company's cost of capital is 14%, should this machine be purchased using the IRR criterion? (Hint: This is similar to exercise 17.2 in your text book. The solution is in Appendix D. )