Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the projects 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the companys pre-tax annual cash flows. What is the projects NPV?

WACC 10.0%

Pre-tax cash flow reduction in other products (cannibalization) $10,000

Investment cost $65,000

Annual capital cost of allowance (assume constant capital cost allowance for ease of computation) $21,665

Annual sales revenues $75,000

Annual cash operating costs $30,000

Tax rate 20.0%

a. $26,598 b. $32,333 c. $80,400 d. $15,407