Companies invest in expansion projects with the expectation of increasing the earnings of its business.
Consider the case of Garida Co.:
Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Year 1 | Year 2 | Year 3 | Year 4 | |
---|---|---|---|---|
Unit sales | 5,500 | 5,200 | 5,700 | 5,820 |
Sales price | $42.57 | $43.55 | $44.76 | $46.79 |
Variable cost per unit | $22.83 | $22.97 | $23.45 | $23.87 |
Fixed operating costs except depreciation | $66,750 | $68,950 | $69,690 | $68,900 |
Accelerated depreciation rate | 33% | 45% | 15% | 7% |
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. Garida 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. (Note: Round your answer to the nearest whole dollar.)
Now determine what the project’s NPV would be when using straight-line depreciation. (Note: Round your answer to the nearest whole dollar.)
The depreciation method will result in the highest NPV for the project.
No other firm would take on this project if Garida turns it down. How much should Garida 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 $700 for each year of the four-year project? (Note: Round your answer to the nearest whole dollar.)
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 $9,000, after taxes, if the project is rejected. What should Garida do to take this information into account?
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No other firm would take on this project if Garida turns it down. How much should Garida 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 $700 for each year of the four-year p
Companies invest in expansion projects with the expectation of increasing the earnings of its business.Consider the case of Garida Co.:Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:Year 1Year 2Year 3Year 4Unit sales5,5005,2005,7005,820Sales price$42.57$43.55$44.76$46.79Variable cost per unit$22.83$22.97$23.45$23.87Fixed operating costs except depreciation$66,750$68,950$69,690$68,900Accelerated depreciation rate33%45%15%7%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. Garida pays a...
** Hidden underneath the blue dropdown menu below, it says "No other firm would take on this project" and "this project would reduce one of its"** Attempts: 3 Keep the Highest: 3/5 3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price...
2. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Fox Co.: Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 5,500 5,200 5,700 5,820 Sales price $42.57 $43.55 $44.76 $46.79 Variable cost per unit $22.83 $22.97 $23.45 $23.87 Fixed operating costs except depreciation $66,750 $68,950...
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 5,500 5,200 5,700 5,820 Sales price $42.57 $43.55 $44.76 $46.79 Variable cost per unit $22.83 $22.97 $23.45 $23.87 Fixed operating costs $66,750 $68,950 $69,690 $68,900...
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Unit sales 5,500 5,200 5,700 5,820 Sales price $42.57 $43.55 $44.76 $46.79 Variable cost per unit $22.83 $22.97 $23.45 $23.87 Fixed operating costs $66,750 $68,950 $69,690 $68,900...
7. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 5,820 $42.57 $43.55 $44.76$46.79 $22.83 $22.97 $23.45 $23.87 Fixed operating costs except depreciation $66,750 $68,950 $69,690 $68,900 7% 5,500 5,200 Unit sales Sales price Variable cost per...
""When using straight-line depreciation, the project’s NPV" alternatives are: $16,863, $17,537, $15,513, $13,490 ""Using the" alternatives are: accelerated, straigh-line Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Happy Dog Soap: Happy Dog Soap is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales (units) Sales price Variable cost per unit Fixed operating costs except depreciation Year 1 3,000 $17.25 $8.88 $12,500...