Problem
A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firm's cost of capital is 12 percent.
a. Compute the internal rate of return and the net present value.
b. Should the firm accept or reject the project?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.