Analysis of an expansion project

Companies invest in expansion projects with the expectation of increasing the eamings ot 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:

This project will require an investment of $$20,000$ in new equipment. The equipment will have no salvage value at the end of the project's four$-$year

life. Garida 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 depreciation.

Detemine what the project's net present value $($NPV$)$ would be when using accelerated depreciation. $($Note: Round your intermediate calculations to

the nearest whole number.$)$

$$75,896$

$$68,306$

$$91,075$

$$60,717$

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

No other firm would take on this project if Garida turns it down. How much should Garic

project would reduce one of its division's net after$-$tax cash nows by $$600$ for each year

ie NPV of this project if it discovered that this

$71,776$

$$1,117$

$$1,861$

$$1,396$

$$2,047$