DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a $20,000 salvage value. $15,000 new working capital would be required at the start of the project. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Risk-adjusted cost of capital 10.0% Net investment cost (depreciable basis) 100,000 Straight-line deprec. rate 33.3333% Sales revenues, each year $50,000 Operating costs (excl. deprec.), each year $15,000 Tax rate 40.0%
DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be
|
Risk-adjusted cost of capital |
10.0% |
|
Net investment cost (depreciable basis) |
100,000 |
|
Straight-line deprec. rate |
33.3333% |
|
Sales revenues, each year |
$50,000 |
|
Operating costs (excl. deprec.), each year |
$15,000 |
|
Tax rate |
40.0% |
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