Ch 12: Assignment - Cash Flow Estimation and Risk Analysis Back to Assignment Attempts Do No Harm/5 2. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Fox Co.: Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 3 5,700 Unit sales $44.76 Year 1 5,500 $42.57 $22.83 $66,750 33% Sales price Year 2 5,200 $43.55 $22.97 $68,950 45% Year 4 5,820 $46.79 $23.87 $68,900 $23.45 $69,690 Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate 15% 7% 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. Fox 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 acceleratu depreciation. (Note: Round your answer to the nearest whole dollar.) O $68,306 O $60,717 0 $75,896 O $91,075 donreciation. (Note: Round your answer to the nearest whole dollar.) Ch 12: Assignment - Cash Flow Estimation and Risk Analysis O $68,306 O $60,717 Is 0 $75,896 O $91,075 Now determine what the project's NPV would be when using straight-line depreciation. (Note: Round your answer to the nearest whole dollar.) The m depreciation method will result in the highest NPV for the project. No other firm would take on this project if Fox turns it down. How much should Fox reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $400 for each year of the four-year project? (Note: Round your answer to the nearest whole dollar.) 0 $931 0 $1,365 0 $745 O $1,241 The project will require an initial Investmenbf $20,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should Fox do to take this information into account? O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the NPV of the project by $4,000. O Increase the amount of the initial investment by $4,000, Grade It Now Save & Continue Continue without saving