One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. 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 zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. a. Estimate the annual depreciation that the company needs to pay from year 1 to year 3.
One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life. Consider the following scenarios. You will need to use the data provided to solve the question. Temple Corp. 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 zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. a. Estimate the annual depreciation that the company needs to pay from year 1 to year 3.
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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One of the methods to evaluate a project is by estimating the Net Present value of that particular project. In order to do so, the working capital is included in the capital budgeting analysis and it will be then recovered at the end of a project’s life.
Consider the following scenarios. You will need to use the data provided to solve the question.
Temple Corp. 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 zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life.
a.
Estimate the annual depreciation that the company needs to pay from year 1 to year 3.
Transcribed Image Text:Risk-adjusted WACC
10.0%
Net investment cost (depreciable
RM65,000
basis)
Straight-line depreciation. Rate (3
years)
Sales revenues, each year
RM73,500
Operating costs (excluding
RM25,000
depreciation), each year
Tax rate
35.0%
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