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The CFO of Dario's Clocks needs help in its capital budgeting process. Dario's is considering a new production line equipment project. See the data below.

The CFO of Dario's Clocks needs help in its capital budgeting process. Dario's is considering a new production line equipment project. See the data below.

The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. That is, both the book value and salvage value will = zero at the end of the project. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?

Risk-adjusted WACC

10.0%

Net investment cost (depreciable basis)

$65,000

Straight-line deprec. rate

33.3333%

Sales revenues, each year

$65,500

Operating costs (excl. deprec.), each year

$25,000

Tax rate

35.0%

A $18,359

B $19,325

C $16,569

D $15,740

E $17,441

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