The Capital Budgeting Decision
[A] Explain why firms do not consider sunk costs in capital budgeting decisions?
[B] If a firm faces a capital constraint explain how this may negatively impact shareholder wealth maximization?
[C] A new machine costing $200,000 is expected to save the Company B $25,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm's marginal tax rate is 40 percent.
What are the annual net cash flows associated with the purchase of this machine?
Compute the net investment (NINV) for this project?