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Temple Corp. is considering a new project whose data are shown below. The equipment that would...

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 $73,500 Annual operating costs (excl. depr.) $25,000 Tax rate 35.0% Select one:

a. $27,418

b. $36,450

c. $32,902

d. $32,257

e. $29,031

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Answer #1
WACC 10%
Year 0 1 2 3
Investment Cost -65000
Sales Revenue 73500 73500 73500
(minus) Operating Cost 25000 25000 25000
(minus) Depreciation 21667 21667 21667
Operating Income (EBIT) 26833 26833 26833
(minus) Taxes (T) at 35% 9391.55 9391.55 9391.55
EBIT * (1 - T) 17441.45 17441.45 17441.45
(plus) Depreciation 21667 21667 21667
Projected Cash flows 39108.45 39108.45 39108.45
Present Value of CF -65000 35553.14 32321.03 29382.76
Net Present Value 32256.93

Correct answer is option d i.e., $32257

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