Analysis of an expansion project

Companies invest in expansion projects with the expectation of increasing the earnings of 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 $$10,000$ in new equipment. Under the new tax law, the equipment is eligible for $100\%$ bonus deprecation at

$t=0,$ so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four$-$year life. Garida

pays a constant tax rate of $25\%,$ and it has a weighted average cost of capital $($WACC$)$ of $11\%.$ Determine what the project's net present value $($NPV$)$

would be under the new tax law.

Which of the following most closely approximates what the project's net present value $($NPV$)$ would be under the new tax law?$($Hint: Round your final

answer to two decimal places and choose the value that most closely matches your answer.$)$

$$67,834\mathrm{.}14$

$$70,783\mathrm{.}45$

$$58,986\mathrm{.}21$

$$47,188\mathrm{.}97$

Which of the of the following most closely approximates what the project's NPV would be when using straight$-$line depreciation? $($Hint: Round your

final answer to two decimal places and choose the value that most closely matches your answer.$)$

$$55,503\mathrm{.}98$

$$67,189\mathrm{.}03$

$$73,031\mathrm{.}55$

$$58,425\mathrm{.}24$

Using the

$\_$ depreciation method will result in the highest NPV for the project.

No other $fi$

straight$-$line

on this project if Garida turns it down. Which of the following most closely approximates how much Garida should reduce the

NPV of this

bonus

hing it is discovered that this project would reduce one of its division's net after$-$tax cash flows by $$500$ for each year of the