Question
Best Food Company is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method
Best Food Company is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Best products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Discuss the results. WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) $5,000 Investment cost (depreciable basis) $80,000 Annual sales revenues $67,500 Annual operating costs (excl. depreciation) $25,000 Tax rate 35.0%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started