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Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yestman CO: Yeatman Co. is considering
Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yestman CO: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: This project will require an investment of $10,000 in new equipment. Under the new tax law, the equipment is elligible 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 life. Yeatman 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 (NP) would bee under the new tax law. Determine what the project's net present vatue (NPV) would be under the new tax law. $104,186$83,349$93,767$125,023 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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