Temple Corp, is considering a new project whose data are shown below. The equipm
ID: 2707872 • Letter: T
Question
Temple Corp, 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 a zero salvage value. No new working capital would be required. Revenues and other operating costs are expecting to be constant over the project's 3-year life. What is the project's NPV?
Risk-adjusted WACC 10.0%
Net investment cost (depreciable basis) $65,000
Straight-lin depr. rate 33.3333%
Sales revenue, each year $73,500
Operating costs (excl. depr.), each year $25,000
Tax rate 35.0
a. $34,191
b. $27,417
c. $29,675
d. $32,256
e. $36,449
Explanation / Answer
Depreciation = 65000/3 = 21,666.67
Annual Cash flow = (Sales revenue, each year-Operating costs (excl. depr.), each year) * (1-tax rate) + Deprecition*tax rate
Annual Cash flow = (73500-25000)*0.65 + 21666.67*0.35
Annual Cash Flow = 39108.33
NPV = 39108.33PVIFA(10%,3) - 65000
NPV = 39108.33*2.48685 - 65000
NPV = 32256
Answer: d. $32,256
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.