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Tex Mex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line
Tex Mex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating 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 Tex Mex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. 10.0% WACC -$5,000 Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) $80,000 33.333% Straight-line depr. rate Annual sales revenues $66.000 -$25,000 Annual operating costs (excl. depr.) Tax rate 35.0% O a. 01,403 b. 01,347 OC. 01,684 Od 01,094 O e.01,529
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