Question
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
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 project's 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the company's pre-tax annual cash flows. What is the project's NPV? WACC 12.0% Pre-tax cash flow reduction in other products 15,000 Net investment in fixed assets 55,000 Annual capital cost allowance 31,000 Sales revenues, each year 80,000 Cash operating costs, each year 25,000 Tax rate 25.0%
a. 35,669 b. 36,750 C. 38,750 d. 40,301
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