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Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Ca.: Garida Co. is considering
Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Ca.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 4,000 4,200 3,500 $38.50 $39.88 $40.15 $41.55 Sales price Variable cost per unit $22.34 $22.85 $23.67 $23.87 $37,000 $37,500 $38,120 $39,560 This project will require an investment of $15,000 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 ide. 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. Determine what the project's net present value (NPV) would be under the new tax law. O $66,283 O $55,236 O $63,521 O $44,189
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