Question
Meals on Wings Inc., which supplies prepared meals for corporate aircraft, needs to purchase new broilers. The new broilers would replace broilers purchased 10 years
Meals on Wings Inc., which supplies prepared meals for corporate aircraft, needs to purchase new broilers. The new broilers would replace broilers purchased 10 years ago for $105,000, which are being depreciated on a straight-line basis to a zero salvage value (15-year depreciable life). The old broilers can be sold today for $63,000. The new broilers will cost $202,000, installed (not counting funds already spent), and will be depreciated using straight-line depreciation over their 5-year life. They will be sold at their book value at the end of the 5th year. The firm expects to increase its revenues by $27,000 per year if the new broilers are purchased, but cash expenses will also increase by $3,000 per year. Annual interest expense will be $2,000, and net working capital will increase by $5,000. The new broilers will occupy space currently leased to another firm for $530 per month, and $5,000 has already been spent preparing the building for new broilers. The firm's tax rate is 40%. What is the NPV for the proposed acquisition if the cost of capital is 10%? Round your answers to the nearest dollar.
-$61,329 | ||
-$53,605 | ||
-$49,968 | ||
-$46,863 | ||
-$44,968 |
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