Yummy Foods is considering a new salsa product 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 the project's 3-year life, would have zero salvage value, and no new 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 Yummy products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) WACC 10% Annual pre-tax cannibalization cost $ 5,000 Net investment cost (depreciable basis) $65,000 Straight line depr'n rate 33.33% Sales revenues $70,000 Operating costs excl. depr'n $25,000 Tax rate 35%
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Yummy Foods is considering a new salsa product whose data are shown below. The equipment that would be
used has a 3-year tax life, would be
would have zero salvage value, and no new 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 Yummy products and would reduce their pre-tax annual cash flows. What is the project's
Cash flows are constant in Years 1-3.)
WACC 10%
Annual pre-tax cannibalization cost $ 5,000
Net investment cost (depreciable basis) $65,000
Straight line depr'n rate 33.33%
Sales revenues $70,000
Operating costs excl. depr'n $25,000
Tax rate 35%
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