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 1 Year 2 Year 3 4,300 $30.31 Year 4 4,400 Unit sales Sales price $33.19 4,200 $29.82 $12.15 $41,000 4,100 $30.00 $13.45 $41,670 $14.55 Variable cost per unit Fixed operating costs $14.02 $41,890 $40,100 This project will require an investment of $25,000 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 life. Fox pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%, Determine what the project's not 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. $55,782 O $64,149 $44,626 $66,938 Search this coun Homework Chapter 12 - Cash Flow Estimation and Risk Analysis 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 $54,378 $70,691 No other firm would take on this project if Fox turns it down. How much should Fox redu of this project it discovered that this project would reduce one of its division's net after-tax cash flows by $600 for each year of the $67,973 Joject? $51,659 O $1,861 $2,047 $1,582 O $1,117 Fox spent $2,250 on a marketing study to estimate the number of units that it can sell each year. What should Fox do to take this information into account? cory Increase the NPV of the project $2,250. The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the amount of the initial investment by $2,250. Grade It Now Save & Continue Continue without saving HOW tion and SK Analysis X 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. bonus No other on this project if Fox turns it down. How much should Fox reduce the NPV of this project it discovered that this project would redu straight-line vision's net after-tax cash flows by $600 for each year of the four-year project? O $1,861 O $2,047 O $1,582 O $1,117 Fox spent $2,250 on a marketing study to estimate the number of units that it can sell each year. What should Fox do to take this information into account? O Increase the NPV of the project $2,250. The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the amount of the initial investment by $2,250. Grade it Now Save & Continue Continue without saving Zo re $ 4 # 3 % 5 & 7 6 8 9 0 0 U P E R T G J H F D V X N C B . command option
