3. Analysis of an expansion project Companies in expansion projects with the expectation of increasing the aming of its business Consider the case of Yatman : Yatman C. Es considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 4 Un sales Year 1 5.500 $42.52 $22.83 $66,750 Year 2 5.200 $43.55 Year 3 5.700 544.76 $46.70 Variable per una Fixed operating costs $68,00 569,600 $68,000 This project will require an inment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at : - 0, so it will be fully deprecated at the time of purchase. The equipment will have to sabage value at the end of the project's four-year life Yatman pays a constant tax rate of 25%, and it has a mighted average crit af capital (WACC) of 11%. Datatine what the project's not present valus (NPV) would be under the new tax law. Determine what the projecte present value (NPV) would be under the new tax law. O $116,023 O $111.189 O $96,696 O $87,017 Non determine what the projects NPV would be when using straighe-line depreciation Using the depreciation method will result in the highest for the project Naothar fem would take on this project Yatman tuntia it down. How much should Yatman reduce the NPV of this projdit discovered that this project would reduce one of its division's nataftar-tax cash flows by $400 for each year of the four-year project? O $1,055 O $1,365 O $1,241 O $931 The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being wild. This truck could be sold for $12,000, alte taxes, the project is rejected. What should Yeatman do to take this information into account? The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the NPV of the project by $12,000. Increase the amount of the initial investment by $12,000. Grade It Now Save & Continue Continue without saving 3. Analysis of an expansion project Companies in expansion projects with the expectation of increasing the aming of its business Consider the case of Yatman : Yatman C. Es considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 4 Un sales Year 1 5.500 $42.52 $22.83 $66,750 Year 2 5.200 $43.55 Year 3 5.700 544.76 $46.70 Variable per una Fixed operating costs $68,00 569,600 $68,000 This project will require an inment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at : - 0, so it will be fully deprecated at the time of purchase. The equipment will have to sabage value at the end of the project's four-year life Yatman pays a constant tax rate of 25%, and it has a mighted average crit af capital (WACC) of 11%. Datatine what the project's not present valus (NPV) would be under the new tax law. Determine what the projecte present value (NPV) would be under the new tax law. O $116,023 O $111.189 O $96,696 O $87,017 Non determine what the projects NPV would be when using straighe-line depreciation Using the depreciation method will result in the highest for the project Naothar fem would take on this project Yatman tuntia it down. How much should Yatman reduce the NPV of this projdit discovered that this project would reduce one of its division's nataftar-tax cash flows by $400 for each year of the four-year project? O $1,055 O $1,365 O $1,241 O $931 The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being wild. This truck could be sold for $12,000, alte taxes, the project is rejected. What should Yeatman do to take this information into account? The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the NPV of the project by $12,000. Increase the amount of the initial investment by $12,000. Grade It Now Save & Continue Continue without saving
