Question
Ross Corporation is thinking of opening a new warehouse. The new equipment required has a net cost (depreciable basis) of 125,000. In addition, the company
Ross Corporation is thinking of opening a new warehouse. The new equipment required has a net cost (depreciable basis) of 125,000. In addition, the company owns the building that would be used, and it could sell it for 130,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 4-year life, after which it would be worth nothing and thus it would have a zero-salvage value. No new working capital would be required, and sales revenues (160,000) and other operating costs (50,000) would be constant over the project's 4-year life. The projects cost of capital is 12%, and the tax rate is 35%. Based on Ross Corporation data, answer the questions
What is the annual cash flow of the project for years 1 to 4?
What is the projects NPV (no decimal, no rounding)?
What is the projects pay-back period (two decimals, no rounding)?
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