Why should the firm undertake the training program

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Reference no: EM13200097

A company is planning to invest $75,000 before taxes in a personnel training program. The $75,000 outlay will be charged off as an expense by the firm this year (Year 0). The returns estimated from the program in the forms of greater productivity and less employee turnover are as follows (on an after-tax basis):

Years 1-10: $7,500 per year

Years 11-20: $22,500 per year

The company has estimated its cost of capital to be 15%. Assume that the entire $75,000 is paid at time zero the beginning of the project. The marginal tax rate for the firm is 40%.

Based on the net present value criterion, should the firm undertake the training program?

Reference no: EM13200097

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