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Excite Tea ltd. is considering launching a new tea ficvor, which would require them to open a new focility in cayeli. The company's CFO has
Excite Tea ltd. is considering launching a new tea ficvor, which would require them to open a new focility in cayeli. The company's CFO has gathered the following intormation regarding the proposed project: - Since consumer tastes chonge ropidly in the sector, the project only has a 3-year lite. - The company is planning to bulid the focility on a vacant piece of land that it alreody owns. If it wanted to, the company could sell the land for an after-tax cash flow of 64.000 .000 \). - It would cost t10.000.000 today to construct the new facility. This cost will be depreciated over 5 years using the double declining depreciation method. - If the new tacility is opened, imventories should be increcsed by t2.500.000. Accounts payable would also increase by t750.000. - The CFO estimates that the project will generate revenues in the amount of 18.000 .000 in each of the next three years. - Operating costs excluding depreciation is equat to 70 percent of the revenue. - The company is expecting to abandon the focility after three years. The estimated salvoge value at the end af the third year is t 5.000 .000 . - The project's cost of capital is 15 percent. - The company is subject to a 22% tax rate
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