3. Analysis of an expansion project Companles Invest In expanslon projects with the expectatlon of Increasing the earmings of Its business. Conslder the case McFann Co.: A-Z McFann 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 3,000 3,250 3,300 3,400 Sales price $17.25 $17.33 $17.45 $18.24 Variable cost per unit $8.88 $8.92 $9.03 $9.06 Flxed operating costs except depreclation $12,500 $13,000 $13,220 $13,250 Accelerated depreciation rate 33% 45% 15% 7% the end of the project's four-year This project will require an investment of s15,000 in new equipment. The equipment will have no salvage value 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 net present value (NPV) would be when using accelerated depreclation Determine what the project's net present value (NPV) would be when using accelerated depreciation. $19,774 $17,195 $15,476 $20,634 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 No other firm would take on this project if McFann turns it down. How much should McFann reduce the NPV of this project if it discovered that this project would reduce one of Its division's net after-tax cash flows by $700 for each year of the four-year project? $1,846 $2,389 $1,629 $2,172 No other firm would take on this project if McFann turns it down. How much should McFann reduce the NPV of this project if it discovered that this Fthe four-year project? project would reduce one of its divislon's net after-tax cash flows by $700 for each year $1,846 $2,389 $1,629 $2,172 McFann spent $1,500 on a marketing study to estimate the number of units that it can sell each year. What should McFann do to take this information into account? Increase the NPV of the project $1,500. The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the amount of the Initial Investment by $1,500. Grade It Now Save & Continue Continue without saving