BC Travel Services is considering a new ten-year project that will generate additional sales revenue of $200,000 per year.The associated costs are $120,000 per year.The project is somewhat riskier than the company's current operations, and hence requires a risk premium of 2%.The company's cost of capital is 12% and marginal tax rate is 40%.What is the present value of the after-tax operating cash flows?

Question

Quizplus · Accepted Answer

The present value of the after-tax operating cash flows is $250,374. This is calculated as follows:PV = (CF * (1 - T)) / (r - g)= ($200,000 * (1 - 0.4)) / (0.12 - 0.02)= $250,374

BC Travel Services Is Considering a New Ten-Year Project That