Moon Corp. is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Plastic products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Briefly discuss the results and why you would accept or reject the equipment. WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) −$5,000 Investment cost (depreciable basis) $80,000 Annual sales revenues $67,500 Annual operating costs (excl. depreciation) −$25,000 Tax rate 21.0%
Moon Corp. is considering a new product whose data are shown below. The equipment to be used would be
|
WACC |
10.0% |
|
Pre-tax cash flow reduction for other products (cannibalization) |
−$5,000 |
|
Investment cost (depreciable basis) |
$80,000 |
|
|
|
|
Annual sales revenues |
$67,500 |
|
Annual operating costs (excl. depreciation) |
−$25,000 |
|
Tax rate |
21.0% |
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