b Forecasting changes in wet working capital is necessary if the timing of all catch 14. Depreciation Ms. "T. Potts, the SOTT of Ideal China, bas a problem. The company has just ordered a new kiln for $400.000. Of this sum, 550.000 is described by the supplier as an installation cost. Ms. Pois does not know whether the Internal Revenue Service (IRS) will permit the company to treat this costas a tax deductible current expense or as a capital investment. In the latter case, the company could depreciate the S50 000 using the ve year Part One Value 153 inflows and outflows is carefully specified Car MACRS tax depreciation schedule. How will the TRS's decision affect the after-tax cost of the kiln? The tax rate is 35% and the opportunity cost of capital is 5%. 15. Project NPV After spending $3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 56 million This investment will be deprecatent straight-time over five years to a value of zero, but when the project comes to an end in five years, the equipment can, in fact, be sold for $500.000 The firm believes that working capital at each date must be maintained at 10% of next years forecasted sales. Production costs are estimated at $1.50 per trap and the traps will be sold for $4 each. (There are no marketing expenses.) Sales forecasts are given in the following tabl The firm pays tax at 35% and the required return on the project is 12%. What is the NPV? bet tysite Years 0 Sales (millions of traps) 0 0.5 0.6 1.0 1.0 0. 16. Project NPV and IRR A project requires an initial investment of $100,000 and is e to produce a cash inflow before tax of $26,000 per year for five years. Compan Tor in the foreseeab b Forecasting changes in wet working capital is necessary if the timing of all catch 14. Depreciation Ms. "T. Potts, the SOTT of Ideal China, bas a problem. The company has just ordered a new kiln for $400.000. Of this sum, 550.000 is described by the supplier as an installation cost. Ms. Pois does not know whether the Internal Revenue Service (IRS) will permit the company to treat this costas a tax deductible current expense or as a capital investment. In the latter case, the company could depreciate the S50 000 using the ve year Part One Value 153 inflows and outflows is carefully specified Car MACRS tax depreciation schedule. How will the TRS's decision affect the after-tax cost of the kiln? The tax rate is 35% and the opportunity cost of capital is 5%. 15. Project NPV After spending $3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 56 million This investment will be deprecatent straight-time over five years to a value of zero, but when the project comes to an end in five years, the equipment can, in fact, be sold for $500.000 The firm believes that working capital at each date must be maintained at 10% of next years forecasted sales. Production costs are estimated at $1.50 per trap and the traps will be sold for $4 each. (There are no marketing expenses.) Sales forecasts are given in the following tabl The firm pays tax at 35% and the required return on the project is 12%. What is the NPV? bet tysite Years 0 Sales (millions of traps) 0 0.5 0.6 1.0 1.0 0. 16. Project NPV and IRR A project requires an initial investment of $100,000 and is e to produce a cash inflow before tax of $26,000 per year for five years. Compan Tor in the foreseeab