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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:

  1. A) What is the NPV of the project?
  2. B) Should the project be undertaken?

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