Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equpiment cost $200,000 Units sold 56,000 Average price per unit, Year 1 $25.00 Fixed op. costs (constant) $150,000 Variable op. cost/unit, Year 1 $20.20 Expected annual inflation rate 5.00% Tax rate 25.0% a. $95,434 b. $119,635 c. $136,882 d. $45,434 e. $86,882
Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number. WACC 10.0% Equpiment cost $200,000 Units sold 56,000 Average price per unit, Year 1 $25.00 Fixed op. costs (constant) $150,000 Variable op. cost/unit, Year 1 $20.20 Expected annual inflation rate 5.00% Tax rate 25.0% a. $95,434 b. $119,635 c. $136,882 d. $45,434 e. $86,882
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
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Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. At the end of the project’s life, the equipment would have no salvage value. No change in net operating working capital (NOWC) would be required for the project. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.
| WACC | 10.0% |
| Equpiment cost | $200,000 |
| Units sold | 56,000 |
| Average price per unit, Year 1 | $25.00 |
| Fixed op. costs (constant) | $150,000 |
| Variable op. cost/unit, Year 1 | $20.20 |
| Expected annual inflation rate | 5.00% |
| Tax rate | 25.0% |
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