First blank: ($68,306 / 75,896 / 87,280 / 91,075)

Second blank: ($86,887 / 98,220 / 94,443 / 75,554)

Third blank: (accelerated / straight-line)

6. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Happy Dog Soap: Happy Dog Soap is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales (units) Sales price Year 1 5,500 $42.57 $22.83 $66,750 33% Year 2 5,200 $43.55 $22.97 $68,950 45% Year 3 5,700 $44.76 $23.45 $69,690 Year 4 5,820 $46.79 $23.87 $68,900 Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate 15% 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Happy Dog Soap pays a constant tax rate of 40%, and it has a required rate of return of 11%. . (Hint: Round each element in your computation- When using accelerated depreciation, the project's net present value (NPV) is $75,896 including the project's net present value-to the nearest whole dollar.) . (Hint: Again, round each element in your computation-including the When using straight-line depreciation, the project's NPV is project's net present value-to the nearest whole dollar.) Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Happy Dog Soap turns it down. How much should Happy Dog Soap reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $300 for each year of the four-year project? 0 $1,024 O $931 $791 O $698 The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should Happy Dog Soap do to take this information into account? O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the amount of the initial investment by $4,000. O Increase the NPV of the project by $4,000. 6. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Happy Dog Soap: Happy Dog Soap is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales (units) Sales price Year 1 5,500 $42.57 $22.83 $66,750 33% Year 2 5,200 $43.55 $22.97 $68,950 45% Year 3 5,700 $44.76 $23.45 $69,690 Year 4 5,820 $46.79 $23.87 $68,900 Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate 15% 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Happy Dog Soap pays a constant tax rate of 40%, and it has a required rate of return of 11%. . (Hint: Round each element in your computation- When using accelerated depreciation, the project's net present value (NPV) is $75,896 including the project's net present value-to the nearest whole dollar.) . (Hint: Again, round each element in your computation-including the When using straight-line depreciation, the project's NPV is project's net present value-to the nearest whole dollar.) Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Happy Dog Soap turns it down. How much should Happy Dog Soap reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $300 for each year of the four-year project? 0 $1,024 O $931 $791 O $698 The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should Happy Dog Soap do to take this information into account? O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the amount of the initial investment by $4,000. O Increase the NPV of the project by $4,000