Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Platinum Water Recycling is evaluating the medical clinic project, a 2-year project that would involve buying equipment for 118,000 dollars that would be depreciated to

Platinum Water Recycling is evaluating the medical clinic project, a 2-year project that would involve buying equipment for 118,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 9,000 dollars in year 2. Relevant annual revenues are expected to be 121,000 dollars in year 1 and 121,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 10,000 dollars in year 1 and 10,000 dollars in year 2. Finally, the firm has no fixed costs in year 1 and one fixed cost in year 2 of the project. Yesterday, Platinum Water Recycling signed a deal with Green Forest Media to develop an advertising campaign. The terms of the deal require Platinum Water Recycling to pay Green Forest Media either 57,000 dollars in 2 years from today if the medical clinic project is pursued or 36,000 dollars in 2 years from today if the medical clinic project is not pursued. The tax rate is 20 percent and the cost of capital for the medical clinic project is 14.76 percent. What is the net present value of the medical clinic project?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cutting Edge Internal Auditing

Authors: Jeffrey Ridley

1st Edition

0470510390, 978-0470510391

More Books

Students also viewed these Accounting questions