Search this course Assignment 12- Cash Flow Estimation and Risk Analysis 1. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business Aa- Consider the case of Fox Co.: Fox Co, is considering an investment that will have the following sales, variable costs, and forced operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate Year 1 4,800 $22.33 $9.45 $32,500 Year 2 5,100 $23.45 $10.85 $33,450 45% Year 3 5,000 $23.85 $11.95 $34,950 Year 4 5,120 $24.45 $12.00 $34,875 33% This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Fox pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Determine what the project's not present value (NPV) would be when using accelerated depreciation $28,974 $32,595 O $36,218 O $41,651 Now determine what the project's NPV would be when usin Using the depreciation method will result accelerated straight-line No other firm would take on ths project if Fox turns it down. How much should Fox reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? O $1,846 $2,389 $1,629 $2,172 Fox spent $2,250 on a marketing study to estimate the number of units that it can sell each year. What should Fox do to take this information into account? The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. Increase the amount of the initial investment by $2,250. Increase the NPV of the project $2,250. O F Player MAC2,0,0,.203 033341 2004-2016 A 20 cenge Lerng rchive bod. A Grade it Now Save & Continue Continue without saving MacBook Air