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	3,500	4,000	4,200	4,250
Sales price	$38.50	$39.88	$40.15	$41.55
Variable cost per unit	$22.34	$22.85	$23.67	$23.87
Fixed operating costs except depreciation	$37,000	$37,500	$38,120	$39,560
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 projects four-year life. Fox pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the projects net present value (NPV) would be when using accelerated depreciation.

Determine what the projects net present value (NPV) would be when using accelerated depreciation. (Note: Round your intermediate calculations to the nearest whole number.)

$49,564

$43,099

$38,789

$34,479