Question
Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used,
Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the projects 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the projects 3-year life. What is the projects NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r) 10.0% Opportunity cost $100,000 Net equipment cost (depreciable basis) $65,000 Straight-line deprec. rate for equipment 33.333% Sales revenues, each year $123,000 Operating costs (excl. deprec.), each year $25,000 Tax rate 25%
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