Question
Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by
Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV at t=0? make sure to create a table and write down the numbers in the approproate lines in addition to providing the answer.
Net investments in fixed assets $70,000
Required net operating working captial 10,000
Depriciation (MACRS)
33% in year 1
45% in year 2
15% in year 3
7% in year 4
Earnings before taxes & depriciation $45,000
Expected pre-tax & depriciation $5,000
tax rate 35%
WACC 10%
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