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Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year
Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Year 1 | Year 2 | Year 3 | Year 4 | |
---|---|---|---|---|
Unit sales | 4,200 | 4,100 | 4,300 | 4,400 |
Sales price | $29.82 | $30.00 | $30.31 | $33.19 |
Variable cost per unit | $12.15 | $13.45 | $14.02 | $14.55 |
Fixed operating costs except depreciation | $41,000 | $41,670 | $41,890 | $40,100 |
Accelerated depreciation rate | 33% | 45% | 15% | 7% |
No other firm would take on this project if Yeatman turns it down. How much should Yeatman reduce the NPV of this project if it discovered that this project would reduce one of its divisions net after-tax cash flows by $400 for each year of the four-year project?
a) $931
b) $1,055
c) $1,241
d) $1,365
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