Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

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

This project will require an investment of $25,000 in new Determine what the projects net present value (NPV) equipment. The equipment will have no salvage value at would be when using accelerated depreciation. the end of the projects four-year life. McFann pays a O $8,375 constant tax rate of 40%, and it has a weighted average O $9,422 cost of capital (WACC) of 11%. Determine what the O $12,563 projects net present value (NPV) would be when using O $10,469 accelerated depreciation. Now determine what the projects NPV would be when using straight-line depreciation Using the depreciation method will result in the highest NPV for the project. No other firm would take on this project if McFann turns it down How much should McFann reduce the NPV of this project if it discovered that this project would reduce one of its divisions net after-tax cash flows by $700 for each year of the four-year project? O $2,172 O $2,389 O $1,846 O $1,629 also be using a company-owned truck that is not currently being The project will require an initial investment of $25,000, but the project w used. This truck could be sold for $18,000, after taxes, if the project is rejected. What should McFann do to take this information into account? O Increase the amount of the initial investment by $18,000. O The company does not need to do anything with the value of the truck because the truck is a sunk cost O Increase the NPV of the project by $18,000.



 

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. McFann 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. Using the Determine what the project's net present value (NPV) would be when using accelerated depreciation. Now determine what the project's NPV would be when using straight-line depreciation. O $8,375 O $9,422 O $12,563 O $10,469 O $2,172 O $2,389 O $1,846 O $1,629 depreciation method will result in the highest NPV for the project. No other firm would take on this project if McFann turns it down. How much should McFann 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? The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $18,000, after taxes, if the project is rejected. What should McFann do to take this information into account? O Increase the amount of the initial investment by $18,000. O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the NPV of the project by $18,000.

Step by Step Solution

3.75 Rating (172 Votes )

There are 3 Steps involved in it

Step: 1

SOLUTION To calculate the net present value NPV of the project when using accelerated depreciation we first need to calculate the annual depreciation expense using the accelerated method Lets assume t... blur-text-image
Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Corporate Finance

Authors: Richard Brealey, Stewart Myers, Alan Marcus

8th edition

77861620, 978-0077861629

More Books

Students explore these related Finance questions