Problem 12-12 Project Cash Flows (LG12-3) Your highly successful software company is considering adding a new software title to your list. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, "Battlin' Bobby." You had previously planned on using the unused capacity to start selling "BB" on the West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but since your new product will use up the extra capacity, this will require moving this purchase up to 2 years from today. If the new machines will cost $101,000 and can be expensed under Section 179, your marginal tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the unused capacity for the new product? Note: The first machine is accounted for in year one, and the one new machine is added in year two. Negative amount should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to 2 decimal places. Opportunity cost $ 62,436.36
Problem 12-12 Project Cash Flows (LG12-3) Your highly successful software company is considering adding a new software title to your list. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, "Battlin' Bobby." You had previously planned on using the unused capacity to start selling "BB" on the West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but since your new product will use up the extra capacity, this will require moving this purchase up to 2 years from today. If the new machines will cost $101,000 and can be expensed under Section 179, your marginal tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the unused capacity for the new product? Note: The first machine is accounted for in year one, and the one new machine is added in year two. Negative amount should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to 2 decimal places. Opportunity cost $ 62,436.36
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 18SP
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Transcribed Image Text:Problem 12-12 Project Cash Flows (LG12-3)
Your highly successful software company is considering adding a new software title to your list. If you add the new
product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship
product, "Battlin' Bobby." You had previously planned on using the unused capacity to start selling "BB" on the
West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years
from today, but since your new product will use up the extra capacity, this will require moving this purchase up to
2 years from today. If the new machines will cost $101,000 and can be expensed under Section 179, your marginal
tax rate is 21 percent, and your cost of capital is 10 percent, what is the opportunity cost associated with using the
unused capacity for the new product?
Note: The first machine is accounted for in year one, and the one new machine is added in year two. Negative
amount should be indicated by a minus sign. Do not round Intermediate calculations. Round your answer to 2
decimal places.
Opportunity cost
$
62,436.36
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