Garida 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. Garida 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 $63,521.64 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.) O $49,712.59 O $66,283.45 O $55,236.21 O $67,993.44 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.) O $54,394.75 $62,553.96 O $51,675.01 Using the Year 2 Year 3 Year 4 4,000 4,200 4,250 $39.88 $40.15 $41.55 $22.85 $23.67 $23.87 $39,560 Year 1 3,500 $38.50 $22.34 $37,000 $37,500 $38,120 O $1,845.95 O $1,628.78 No other firm would take on this project if Garida turns it down. Which of the following most closely approximates how much Garida 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 $700 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.) $2,388.88 O $2,171.71 depreciation method will result in the highest NPV for the project. Garida spent $2,750 on a marketing study to estimate the number of units that it can sell each year. What should Garida do to take this information into account? O Increase the NPV of the project $2,750. O The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. O Increase the amount of the initial investment by $2,750.

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
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Garida 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
O $63,521.64
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. Garida
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 $49,712.59
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.)
O $66,283.45
O $55,236.21
O $67,993.44
O $54,394.75
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.)
O $62,553.96
O $51,675.01
Year 1
3,500
$38.50
$22.34
$37,000 $37,500 $38,120
Using the
Year 2 Year 3
4,000
4,200
$39.88 $40.15
$22.85 $23.67 $23.87
$39,560
Year 4
4,250
$41.55
O $1,845.95
O $1,628.78
O $2,388.88
O $2,171.71
No other firm would take on this project if Garida turns it down. Which of the following most closely approximates how much Garida 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 $700 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.)
depreciation method will result in the highest NPV for the project.
Garida spent $2,750 on a marketing study to estimate the number of units that it can sell each year. What should Garida do to take this information
into account?
O Increase the NPV of the project $2,750.
O The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.
O Increase the amount of the initial investment by $2,750.
Transcribed Image Text:Garida 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 O $63,521.64 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. Garida 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 $49,712.59 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.) O $66,283.45 O $55,236.21 O $67,993.44 O $54,394.75 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.) O $62,553.96 O $51,675.01 Year 1 3,500 $38.50 $22.34 $37,000 $37,500 $38,120 Using the Year 2 Year 3 4,000 4,200 $39.88 $40.15 $22.85 $23.67 $23.87 $39,560 Year 4 4,250 $41.55 O $1,845.95 O $1,628.78 O $2,388.88 O $2,171.71 No other firm would take on this project if Garida turns it down. Which of the following most closely approximates how much Garida 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 $700 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.) depreciation method will result in the highest NPV for the project. Garida spent $2,750 on a marketing study to estimate the number of units that it can sell each year. What should Garida do to take this information into account? O Increase the NPV of the project $2,750. O The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost. O Increase the amount of the initial investment by $2,750.
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