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3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida 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 $25,000 in new Determine what the project's net present value (NPV) equipment. The equipment will have no salvage value a would be when using accelerated depreciation. the end of the project's four-year life. Garida pays a O $41,828 constant tax rate of 40%, and it has a weighted average $29,098 O cost of capital (WACC) of 11%. Determine what the O $32,735 project's net present value (NPV) would be when using $36,372 O accelerated depreciation. Now determine what the project's NPV would be when using straight-line depreciation. Using the depreciation method will result in the highest NPV for the project
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