California Hideaways is considering a new project whose data are shown below. Th

Question

California Hideaways is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)

WACC 10.0%
Net investment cost (depreciable basis) $65,000
Straight-line depr'n rate 33.3333%
Sales revenues, each year $60,000
Operating costs excl. depr'n, each year $25,000
Tax rate 35.0%

a. $8,499
b. $8,946
c. $9,417
d. $9,913
e. $10,434

Explanation / Answer

c. $9,417

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