This project will require an investment of $ 10,000 in new equipment. The equipm

Question

This project will require an investment of $ 10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Yeatman pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Determine what the project's net present value (NPV) would be when using accelerated depreciation. $60,833 $63,478 $47,608 $52,898 Now determine what the project's NPV would be when using straight-line depreciation. Using the depredation method will result in the highest NPV for the project. No other firm would take on this project if Yeatman turns it down. How much should Yeatman reduce the NPV of this project If it discovered that this project would reduce one of its division's net after-tax cash flows by $300 for each year of the four-year project? Yeatman spent $1,500 on a marketing study to estimate the number of units that it can sell each year. What should Yeatman do to take this information into account?

Explanation / Answer

1.

2.

3.

PARTICULARS YEAR1 YEAR2 YEAR3 YEAR4 TOTAL SALES(A) 125244 123000 130333 146036 VARIABLE COST 51030 55145 60286 64020 FIXED COST 41000 41670 41890 40100 DEPRECIATION 3300 4500 1500 700 TOTAL COST(B) 95330 101315 103676 104820 CFBTAX(A-B) 29914 21685 26657 41216 TAX 11965.6 8674 10662.8 16486.4 CFATAX 17948.4 13011 15994.2 24729.6 DEPRECIATION 3300 4500 1500 700 CFAT+DEP 21248.4 17511 17494.2 25429.6 PVFACTOR(11%) 0.9009 0.8116 0.7312 0.6587 DCFATAX 19142.68356 14211.9276 12791.75904 16750.48 62896.85 INVESTMENT -10000 NPV 52896.85

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.