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TexMex Products is considering a new salsa whose data are shown below. The equipment that would be used would be depreciated by the straight-line method
TexMex Products is considering a new salsa whose data are shown below. The equipment that would be used would be depreciated by the straight-line method over its 3-year life, would have zero salvage value, and $10,000 of additional new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? 10.0% $5,000 WACC Pre-tax cash flow reduction in other products (cannibalization) Investment cost (deprble basis) Straight-line depr'n rate Sales revenues, each year Annual operating costs, ex. depr'n Tax rate S65,000 33.333% $75,000 $25,000 35.0%
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