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3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business, Consider the case of Yeatmen Co. Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 2 Year 1 3,000 $17.25 Unit Sales Sales price Variable cost per unit Fored operating costs 3,250 $17:33 $8.92 $13,000 Year 3 Year 4 3,300 3,400 $17.45 $18,24 $9.03 $9.06 $13,220 $13,250 $8.88 $12,500 This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four year life Yatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the projects net present value (NPV) would be under the new tax law. This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time or purchase. The equipment will have no selvage value at the end of the project's four-year life. Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. Determine what the project's net present value (NPV) would be under the new tax taw. $17,662 O $15,358 $18,430 O $12,286 Now determine what the project's NPV would be when using straight line depreciation. $13,954 Using the straloht-line depreciation method will result in the highest NPV for the $13,954 $17,443 No other firm would take on this project if Yeatman turns it down. How much should Yod the NPV of this project if it discovered that this 513,256 project would reduce one of its division's net after tax cash flows by $700 for each year year project? $16,140 52,172 $17.443 No other firm would take on this project if Yeatman turns it down. How much should Yed te the NPV of this project if it discovered that this project would reduce one of its division's net ofter-tax cash flows by $700 for each year $13,256 year project? $18,140 O $2,172 $1,303 51,846 52,389 The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $12,000, after taxes, if the project is rejected. What should Yeatman do to take this information into account? Increase the NPV of the project by $12,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the amount of the initial investment by $12,000