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Stanley Company has obtained the following information about a proposed project: Annual cash operating savings (excluding depreciation) for 5 years (end of year)$50,000 Depreciation expense
Stanley Company has obtained the following information about a proposed project:
Annual cash operating savings (excluding depreciation)
for 5 years (end of year)$50,000
Depreciation expense per year for tax purposes$33,000
Estimated salvage value in 5 years$10,000
Cost of equipment$175,000
Required rate of return10%
Income tax rate40%
Estimated useful life (in years)5
Depreciation method for tax purposesStraight-line
Present value of ordinary annuity of one
at 10% for 5 periods3.7908
Present value of one at 10% for 5 periods0.6209
Required:
- A) What is the NPV of the project?
- B) Should the project be undertaken?
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