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.

Risk-adjusted WACC 10.0%

Net investment cost (depreciable basis) $65,000

Straight-line depr. rate 33.3333%

Sales revenues, each year $71,000

Annual operating costs (excl. depr.) $25,000

Tax rate 35.0%

Answer 1

Npv of the project = $28,215

Given WACC - 10% years 0 1 2 3 Investment Sales revenue - $65000 $70,000 $71,000 $71000 $25,000 $25,000 $25,000 $ 21,667 $21,667 $21,666 - operating costs (exclu depreciation) - Depreciation rate = 33.333./. Operating income (EBIT) - Tancs @ 35% $ 24,333 $24,333 $24,33 2 $8516.55 $8516.55 $8516.2 EAT $15,816.45 $ 15,816.45 $ 15,815.8 + Depreciation $ 21667 $ 21,667 $21,666 projected CF's $37,483.45 $37,483.45 $37,481.8 NPV = -$65,000 *[PvIF (10"),0)] + $37,483:45 (PVSE (10, 1071 + $39,483.45 [PULFC104, 2)J +$ 37,481.8[pvIF(1043) 7 - $28,215 ( rounded off) PVIF(8,0) = I (ltr)n