Question

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 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 3,400 $17.25$17.33 $17.45 $18.24 $9.06 Fixed operating costs except depreciation $12,500 $13,000 $13,220 $13,250 7% 3,300 Unit sales Sales price Variable cost per unit 3,000 3,250 $8.88 $8.92 $9.03 Accelerated depreciation rate 33% 45% 1590 This project will require an investment of $20,000 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 O $15,907 O $11,066 O $16,598 O $13,832 Now determine what the project's NPV would be when using straight-line depreciation