A project requires an initial investment of $10,000, and over its 5-year life it will generate annual cash revenues of $5,000 and cash expenses of $2,000. The firm will use straight-line depreciation, but it does not pay taxes.
a. Is t he project worth pursuing if the opportunity cost of capital is 8%?
b. Suppose now there is a new accounting treatment whereby half the initial $10,000 outlay were treated as an expense instead of a capital investment. Does NPV change as a result of this different accounting treatment?