Yummy Foods is considering a new salsa product 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 the project's 3-year life, would have zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Yummy products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) WACC 10% Annual pre-tax cannibalization cost $ 5,000 Net investment cost (depreciable basis) $65,000 Straight line depr'n rate 33.33% Sales revenues $70,000 Operating costs excl. depr'n $25,000 Tax rate 35%

Yummy Foods is considering a new salsa product 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 the project's 3-year life, would have zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Yummy products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) WACC 10% Annual pre-tax cannibalization cost $ 5,000 Net investment cost (depreciable basis) $65,000 Straight line depr'n rate 33.33% Sales revenues $70,000 Operating costs excl. depr'n $25,000 Tax rate 35%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 4P: Although the Chen Company’s milling machine is old, it is still in relatively good working order and...

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Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital would be required, but it would be recovered at the end of the project's life. 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. WACC 10.0% Net investment in fixed assets (depreciable basis) $70,000 Required net operating working capital $10,000 Straight-line depreciation rate 33.333% Annual sales revenues $70,000 Annual operating costs (excl. depreciation) $30,000 Expected pre-tax salvage value $5,000 Tax rate 35.0% a. 0$14,773…
Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital would be required, but it would be recovered at the end of the project's life. 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. WACC 10.0% Net investment in fixed assets (depreciable basis) $70,000 Required net operating working capital $10,000 Straight-line depreciation rate 33.333% Annual sales revenues $57,000 Annual operating costs (excl. depreciation) $30,000 Expected pre-tax salvage value $5,000 Tax rate 35.0% Choices: $–6,092 $-6,518 $-7,371 $-6,213 $-7,005 Give typing…
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