If the Krusty Krab's opportunity cost of capital is 12%,what decision should the Krusty Krab take regarding the new grill?
A)Do not install the new grill since NPV is approximately = - $10,630
B)Install the new grill since NPV is approximately = + $10,630
C)Install the new grill since IRR is approximately = 15%
D)Don't install the new grill since IRR is less than 12%

Question

Quizplus · Accepted Answer

B)CF₀ = -80,000 + 30,000 + .35(40,000 - 30,000)[tax write off old grill sold at loss] = -46,500 Incremental EBITDA = 50,000 - 35,000 = 15,000 Incremental Depreciation = 80,000/8 - 50,000/10 = 5000 Incremental cash flow (years 1 - 8)= (15,000 - 5000)× (1 - .35)+ 5000 = 11,500 CF₀ = -46,500,CFj = 11,500.nj = 8,I = 12,compute NPV = 10,627.86; compute IRR = 18.27%

If the Krusty Krab's Opportunity Cost of Capital Is 12%,what