Answer the question, based on the following info: Do not round the intermediate calculations and round the final answer to the nearest whole number. Thomson Media is considering a new project that will cost the firm $70,000 for the equipment, which has a useful life of three years. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at time zero. The equipment would be sold for $5,000 at the end of Year 3 when the project would be closed down. Also, additional net operating working capital (NOWC) in the amount of $10,000 would be required to implement the project, but it would be recovered at the end of the project's life. Revenues and operating costs in the amount of $61,000 and $30,000, respectively, are expected to be generated annually from the project over its three-year useful life. The cost of capital for the project is 10% and the tax rate is 25%. Should the project (from the previous questions) be accepted and why? Group of answer choices a. Yes, because its cost of capital is greater than its IRR. b. Yes, because its NPV is positive. c. Yes, because its payback period is shorter than its useful life. d. No, because it takes more than a year to break even.
Answer the question, based on the following info: Do not round the intermediate calculations and round the final answer to the nearest whole number. Thomson Media is considering a new project that will cost the firm $70,000 for the equipment, which has a useful life of three years. Under the new tax law, the equipment is eligible for 100% bonus depreciation, so it will be fully depreciated at time zero. The equipment would be sold for $5,000 at the end of Year 3 when the project would be closed down. Also, additional net operating working capital (NOWC) in the amount of $10,000 would be required to implement the project, but it would be recovered at the end of the project's life. Revenues and operating costs in the amount of $61,000 and $30,000, respectively, are expected to be generated annually from the project over its three-year useful life. The cost of capital for the project is 10% and the tax rate is 25%. Should the project (from the previous questions) be accepted and why? Group of answer choices a. Yes, because its cost of capital is greater than its IRR. b. Yes, because its NPV is positive. c. Yes, because its payback period is shorter than its useful life. d. No, because it takes more than a year to break even.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Answer the question, based on the following info: Do not round the intermediate calculations and round the final answer to the nearest whole number.
Thomson Media is considering a new project that will cost the firm $70,000 for the equipment, which has a useful life of three years. Under the new tax law, the equipment is eligible for 100% bonus
$5,000 at the end of Year 3 when the project would be closed down. Also, additional net operating working capital (NOWC) in the amount of $10,000 would be required to implement the project, but it would be recovered at the end of the project's life. Revenues and operating costs in the amount of $61,000 and $30,000, respectively, are expected to be generated annually from the project over its three-year useful life. The cost of capital for the project is 10% and the tax rate is 25%.
Should the project (from the previous questions) be accepted and why?
Group of answer choices
a. Yes, because its cost of capital is greater than its IRR .
b. Yes, because its NPV is positive.
c. Yes, because its payback period is shorter than its useful life.
d. No, because it takes more than a year to break even.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education