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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 $30.00 $30.31 $33.19 Sales price Variable cost per unit $29.82 $12.15 $13.45 $14.02 $14.55 Fixed operating costs $41,000 $41,670 $41,890 $40,100 This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. Determine what the project's net present value (NPV) would be under the new tax law. O $75,938 O $63,282 O $50,626 O $72,774 Now determine what the project's NPV would be when using straight-line depreciation. $62,439 Using the bonus depreciation method will result in the highest NPV for the project
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