An accounting firm is considering expanding their operations into new office space so that they...
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Accounting
An accounting firm is considering expanding their operations into new office space so that they can hire more staff and expand their company. The new lease requires a 5-year commitment. If the firm expands its operations, profits are expected to increase by $250,000 during 2023 and then those additional profits should increase by 12% each year from 2024 to 2027. Leasehold improvements to move into the new office space will cost the firm $850,000 with an estimated useful life of 5 years.
Assume that the company pays corporate income taxes at a rate of 20%. Recalculate the NPV of the project assuming that the leasehold improvements will be depreciated using straight-line depreciation over a 5-year useful life with no salvage value. Does this change your recommendation in #4? Explain why or why not.
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