Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 3,000 3,250 3,300 3,400 $17.25 $17.33 $17.45 $18.24 $8.88 $8.92 $9.03 $9.06 $12,500 $13,000 $13,220 $13,250 Unit sales Sales price Variable cost per unit Fixed operating costs is project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Fox ys a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) uld be under the new tax law. sich of the following most closely approximates what the project's net present value (NPV) would be under the new tax law?(Hint: Round your final swer to two decimal places and choose the value that most closely matches your answer.) $20,571.03 $27,428.04 $26,285.20 $22,856.70 sich of the of the following most closely approximates what the project's NPV would be when using straight-line depreciation? (Hint: Round your al answer to two decimal places and choose the value that most closely matches your answer.) $25,317.54 $27,519.06 O $22,015.25 $20,914.49
Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 3,000 3,250 3,300 3,400 $17.25 $17.33 $17.45 $18.24 $8.88 $8.92 $9.03 $9.06 $12,500 $13,000 $13,220 $13,250 Unit sales Sales price Variable cost per unit Fixed operating costs is project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Fox ys a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) uld be under the new tax law. sich of the following most closely approximates what the project's net present value (NPV) would be under the new tax law?(Hint: Round your final swer to two decimal places and choose the value that most closely matches your answer.) $20,571.03 $27,428.04 $26,285.20 $22,856.70 sich of the of the following most closely approximates what the project's NPV would be when using straight-line depreciation? (Hint: Round your al answer to two decimal places and choose the value that most closely matches your answer.) $25,317.54 $27,519.06 O $22,015.25 $20,914.49
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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Transcribed Image Text:Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Unit sales
Sales price
Variable cost per unit
Fixed operating costs
This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at
t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Fox
pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV)
would be under the new tax law.
O $20,571.03
O $27,428.04
O $26,285.20
O $22,856.70
Which of the following most closely approximates what the project's net present value (NPV) would be under the new tax law?(Hint: Round your final
answer to two decimal places and choose the value that most closely matches your answer.)
Year 1
Year 2
Year 3
3,000
3,250
3,300
$17.25
$17.33
$17.45
$8.88
$8.92
$9.03
$12,500 $13,000 $13,220
O $25,317.54
O $27,519.06
O $22,015.25
O $20,914.49
Year 4
3,400
$18.24
$9.06
$13,250
Which of the of the following most closely approximates what the project's NPV would be when using straight-line depreciation? (Hint: Round your
final answer to two decimal places and choose the value that most closely matches your answer.)
Using the
O $1,706.34
O $1,551.22
O $1,163.42
O $1,318.54
depreciation method will result in the highest NPV for the project.
No other firm would take on this project if Fox turns it down. Which of the following most closely approximates how much Fox should reduce the NPV
of this project, assuming it is discovered that this project would reduce one of its division's net after-tax cash flows by $500 for each year of the four-
year project? (Hint: Round your final answer to two decimal places and choose the value that most closely matches your answer.)
Fox spent $2,250 on a marketing study to estimate the number of units that it can sell each year. What should Fox do to take this information into
account?
O Increase the NPV of the project $2,250.
The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.
Increase the amount of the initial investment by $2,250.
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