Question
Trico Food Company is considering manufacturing a new salsa whose data are shown below. Under the new tax law, the equipment to be used for
Trico Food Company is considering manufacturing a new salsa whose data are shown below. Under the new tax law, the equipment to be used for the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the projects life, the equipment would have zero salvage value. No change in net operating working capital (NOWC) would be required for the project at t=0. Revenues and operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other products the company already makes and sells, and would reduce the pre-tax annual cash flows of those other products by $5000 in each of years 1, 2 and 3. What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equipment cost $80,000 Annual sales revenues of new product $55,000 Annual operating costs of new product -$25,000 Tax rate 25.0%
Group of answer choices
-$4,253
-$14,432
-$4,152
-$13,372
-$3,848
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started