Yeatman Co. is considering an investment that will have the following sales, var
ID: 2757382 • Letter: Y
Question
Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: This project will require an investment of $15,000 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 depredation. Determine what the project's net present value (NPV) would be when using accelerated depredation. $95,111 $63,407 $71,333 $79,259 Now determine what the project's NPV would be when using straight-line depredation. Using the depreciation method will result in the highest NPV for the project. No other firm would take on this project if Yeatman turns it down. Howmuch 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? $698 $791 $931 $559 The project will require an initial investment of $15,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $12,000, after taxes, if the project is rejected. What should Yeatman do to take this information into account? The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the NPV of the project by $12,000. Increase the amount of the initial investment by $12,000.Explanation / Answer
Answer: NPV=$79259
Answer: Projected NPV when using SLM is $79002
Answer:Using the accelerated depreciation method will result in highest NPV.
Answer: $931
If reduce by $300 than NPV is:
NPV=$79259-$78328=$931
units 5500 5200 5700 5820 Particulars Year1 Year2 Year 3 Year 4 Sales 234135 226460 255132 272317.8 Less: variable cost 125565 119444 133665 138923.4 Contribution margin 108570 107016 121467 133394.4 Less: Fixed costs 66750 68950 69690 68900 Less: Dep 4950 6750 2250 1050 EBT 36870 31316 49527 63444.4 Less: Tax @40% 14748 12526.4 19810.8 25377.76 EAT 22122 18789.6 29716.2 38066.64 Add: Dep 4950 6750 2250 1050 Operating cash flow 27072 25540 31966 39117Related Questions
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