Question
DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are
DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the projects 3-year life. The risk-adjusted cost of capital is 0.116. What is the projects NPV?
Risk-adjusted cost of capital | 0.116 |
Net investment cost (depreciable basis) | $100,458 |
Straight-line deprec. rate | 33.3333% |
Sales revenues, each year | $95,500 |
Operating costs (excl. deprec.), each year | $43,000 |
Tax rate | 27.0% |
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