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 McFann Co.: McFann Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 3 Year 4 Year 1 3,000 Year 2 3,250 $17.33 3,300 3,400 $19.24 $17.25 $17.45 Unit sales Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate $9.03 $8.88 $12,500 3398 $8.92 $13,000 45% $13,220 15% $9.06 $13,250 74 This project will require an investment of $15,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. McFann pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's not present value (NPV) would be when using accelerated depreciation Determine what the project's not presente (NPV) would be when using accelerated depreciation 520,634 O $15.476 19,774 A-2 $17.195 Now determine what the project's NPV would be when using straight line depreciation Using the depredation method will result in the highest Nov for the project No other firm would take on this project it can burns down. How much should Mel and reduce the NOV of this project discovered that is project would reduce one dis didision's net altistax cash flows by $400 for each year of the four ear project? 51.241 5931 $1,365 51,055 Mann spent 51.750 on a marketing study to estimate the number of its that it can be each year. What should Mofann do to take this information into account Increase the amount of the initial investment by 51.750 Increase they of the project $1,750. The company does not need to do anything with the cost of the marketing study because the marketing study is a un cost. Grade It Now Save & Continue Continue without and