Your firm is considering launching a new operation. The firm's marginal income tax rate is 18%. The corporation needs a return of 11% on new investment proiecrs Engineering estimates that the machinery needed for the operation will cost $3,000,000. These assets will be depreciated over five years by the straight- line method down to a value of zero. The operating life of the equipment is also five years. At the end of this time you guess that the machinery can be sold for scrap for $200,000. Any capital gains or losses associated with the resell will be treated at the firm's marginal tax rate. The marketing department estimates that annual sales will be around $1,800,000 per year. The accounting department estimates that annual fixed costs will be $275,000, and the variable costs are about 35% of sales. Calculate the net present value of this operation. $1,373,500 $188,200 $208.902 0-$190,255 0-$185,081
Your firm is considering launching a new operation. The firm's marginal income tax rate is 18%. The corporation needs a return of 11% on new investment proiecrs Engineering estimates that the machinery needed for the operation will cost $3,000,000. These assets will be depreciated over five years by the straight- line method down to a value of zero. The operating life of the equipment is also five years. At the end of this time you guess that the machinery can be sold for scrap for $200,000. Any capital gains or losses associated with the resell will be treated at the firm's marginal tax rate. The marketing department estimates that annual sales will be around $1,800,000 per year. The accounting department estimates that annual fixed costs will be $275,000, and the variable costs are about 35% of sales. Calculate the net present value of this operation. $1,373,500 $188,200 $208.902 0-$190,255 0-$185,081
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 14P
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