Problem 3. Century Contracting is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? IRR? What is your decision and why? Briefly discuss results. Project cost of capital (r) Opportunity cost Net equipment cost (depreciable basis) Straight-line deptec, rate for equipment Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate 10.0% $100,000 $65,000 33.333% $123,000 $25,000 35%

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Chapter1: Investments: Background And Issues
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Problem 3.
Century Contracting is thinking of opening a new warehouse, and the key data are shown below.
The company owns the building that would be used, and it could sell it for $100,000 after taxes if
it decides not to open the new warehouse. The equipment for the project would be depreciated by
the straight-line method over the project's 3-year life, after which it would be worth nothing and
thus it would have a zero salvage value. No new working capital would be required, and
revenues and other operating costs would be constant over the project's 3-year life. What is the
project's NPV? IRR? What is your decision and why? Briefly discuss results.
Project cost of capital (r)
Opportunity cost
Net equipment cost (depreciable basis)
Straight-line deNtEC, rate for equipment
Sales revenues, each year
Operating costs (excl. deprec.), each year
Tax rate
10.0%
$100,000
$65,000
33.333%
$123,000
$25,000
35%
Transcribed Image Text:Problem 3. Century Contracting is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? IRR? What is your decision and why? Briefly discuss results. Project cost of capital (r) Opportunity cost Net equipment cost (depreciable basis) Straight-line deNtEC, rate for equipment Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate 10.0% $100,000 $65,000 33.333% $123,000 $25,000 35%
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