Question
Maple Media is considering a proposal to enter a new line of business. In reviewing the proposal, the company's CFO is considering the following facts:
Maple Media is considering a proposal to enter a new line of business. In reviewing the proposal, the company's CFO is considering the following facts: The new business will require the company to purchase additional fixed assets that wil cost $600,000 at t = 0. For tax and accounting purposes, these costs will be depreciated on a straight-line basis over three years. (Annual depreciation will be $200,000 per year at t= 1,2, and 3.) The project will require a $50,000 increase in net operating working capital at t = 0, which will be recoveredatt = 3. The company's marginal tax rate is 35 percent. The new business is expected to generate $2 million in sales each year (at t = 1, 2, and 3). The operating costs excluding depreciation are expected to be $1.4 million per year. The project's cost of capital is 12 percent. What is the project's net present value (NPV)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started