cost of capital

The Fun Foods Corporation must decide on what new product lines to introduce next year. After-tax cash flows are listed below along with initial investments. The firm’s cost of capital is 12 percent and its target accounting rate of return is 20 percent. Assume straight-line depreciation and an asset life of five years. The corporate tax rate is 35 percent. All projects are independent.

Project
Investment
Year 1
2
3
4
5
A
B
C
$5,000
7,500
4,000
$800
1,250
600
$1,000
3,000
1,200
$350
2,500
1,200
$1,250
5,000
2,400
$3,000
5,000
3,000