Discussion

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

• From the scenario for Katrina's Candies, suggest one method in which Herb could use a cost-benefit analysis to argue for or against an expansion.

• Create three 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.

• 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?

or

• 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.)