Question
You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant annual capital cost allowance
You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant annual capital cost allowance over the project's 3-year life and a zero salvage value. This project would require some additional working capital that would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?
WACC 10.0%
Net investment in fixed assets (basis) 65,000
Required new working capital 15,000
Annual capital cost allowance 21,665
Sales revenues, each year 80,000
Cash operating costs, each year 25,000
Tax rate 25.0%
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