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Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case of Yeatman Co.: Yeatman Co. is considering
Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case of Yeatman Co.: Yeatman 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 5,120 $22.33 $23.45 $23.85 $24.45 9.45$10.85 $11.95 $12.00 Fixed operating costs except depreciation $32,500 $33,450 $34,950 $34,875 7% 4,800 Unit sales Sales price Variable cost per unit 5,100 5,000 Accelerated depreciation rate 33% 45% 15% This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Yeatman 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 accelerated depreciation Determine what the project's net present value (NPV) would be when using accelerated depreciation $37,046 O $46,308 O $55,570 $41,677 Now determine what the project's NPV would be when using straight-line depreciation Using the depreciation method will result in the highest NPV for the project
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