Question
Yellow Sand Technology is evaluating the vending machine project, a 2-year project that would involve buying equipment for 76,000 dollars that would be depreciated to
Yellow Sand Technology is evaluating the vending machine project, a 2-year project that would involve buying equipment for 76,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 21,000 dollars in year 2. Relevant annual revenues are expected to be 129,000 dollars in year 1 and 129,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 14,000 dollars in year 1 and 14,000 dollars in year 2. Finally, the firm has no fixed costs in year 1 and one fixed cost in year 2 of the project. Yesterday, Yellow Sand Technology signed a deal with Green Forest Consulting to develop an advertising campaign. The terms of the deal require Yellow Sand Technology to pay Green Forest Consulting either 57,000 dollars in 2 years from today if the vending machine project is pursued or 32,000 dollars in 2 years from today if the vending machine project is not pursued. The tax rate is 30 percent and the cost of capital for the vending machine project is 14.1 percent. What is the net present value of the vending machine project?
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