Investment after taxes(14% is the firm's cost of capital). tax rate is 40 percent and the firm uses straight line depreciation. Any gain or loss on machine is subject to tax at 40 percent.
required
Should Baltic buy the new machine?
Financing charges and net present value
2. the president of the company is not convinced that the interest expense should be excluded from calculation of the net present value. He points out that, "interest is a cash flow. You are supposed to discount cash flows. We borrowed money to totally finance this project. Why not discount interest expenditure?" the president is so convinced that he asks you, the controller, to evaluate the net present value including the interest expense.
Required
how can u adjust the net present value analysis to compensate for the inclusion of the interest expense?