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Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year
Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year Unit sales Sales price Variable cost per unit 5,120 $22.33 $23.45 $23.85 $24.45 $9.45 $10.85 $11.95$12.00 Fixed operating costs except depreciation $32,500 $33,450 $34,950 $34,875 7% 4,800 5,100 5,000 Accelerated depreciation rate 33% 45% 15% This project will require an investment of $15,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Garida pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation Determine what the project's net present value (NPV) would be when using accelerated depreciation O $49,386 $42,944 O $51,533 o $38,650 Now determine what the project's NPV would be when using straight-line depreciation $42,688 $40,554 Using the depreciation method will result in the highest NPV for the p $49,091 No other firm would take on this project if Garida turns it down. How much should Garida 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? O $1,024 O $931 O $698 O $791
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