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Question
TexMex Food Company is considering a new salsa whose data are shown below. Under the new tax law, the equipment to be used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the projects life, the equipment would have zero salvage value, and no change in net operating working capital (NOWC) would be required for the project. Revenues and operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number.
WACC 10.0%
Pre-tax cash flow reduction for other products (cannibalization) -$5,000
Equipment cost $80,000
u200b u200b
Annual sales revenues $55,000
Annual operating costs -$25,000
Tax rate 25.0%
u200b
a. -$4,152
b. -$3,848
c. -$13,372
d. -$4,253
e. -$14,432
Answer
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Related questions
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WACC 10.0%
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u200b u200b
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a. $5,650
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Which of the following statements is CORRECT?
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b. Time lines are not useful for visualizing complex problems prior to doing actual calculations.
c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.
e. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
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Which of the following statements is CORRECT?
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b. Time lines are useful for visualizing complex problems prior to doing actual calculations.
c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines cannot be constructed for annuities where the payments occur at the beginning of the periods.
e. Some of the cash flows shown on a time line can be in the form of annuity payments, but none can be uneven amounts.
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As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).
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b. False