Temple Corp. is considering a new project whose data are shown below. The equipm
ID: 2804866 • 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 change in net operating 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? Do not round the intermediate calculations and round the final answer to the nearest whole number.
10.0%
$65,000
33.3333%
$63,000
$25,000
Tax rate
35.0%
$17,729
$15,283
$14,825
$18,340
$12,838
Risk-adjusted WACC10.0%
Net investment cost (depreciable basis)$65,000
Straight-line depr. rate33.3333%
Sales revenues, each year$63,000
Annual operating costs (excl. depr.)$25,000
Tax rate
35.0%
Explanation / Answer
depreciation per year = 65000 *33.3333% = 21666.65
initial investment = 65000
operating cash flow per year
= (63000 -25000)*(1-0.35) + 21666.65 *0.35
= 32283.33
NPV = -65000 + 32283.33/1.1 + 32283.33/1.1^2 + 32283.33/1.1^3
= 15283
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