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Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To p company would need to purchase a piece of equipment for $130,000. The equipment would have a usef $10,000 salvage value. The CCA rate for the equipment is 30%. After careful study, Winthrop estimated t revenues for the new product: Sales revenues Variable expenses Fixed expenses $250,000 $130,000 $ 70,000

Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To p company would need to purchase a piece of equipment for $130,000. The equipment would have a usef $10,000 salvage value. The CCA rate for the equipment is 30%. After careful study, Winthrop estimated t revenues for the new product: Sales revenues Variable expenses Fixed expenses $250,000 $130,000 $ 70,000

Essentials Of Investments
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
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Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $130,000. The equipment would have a useful life of five years and a $10,000 salvage value. The CCA rate for the equipment is 30%. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Sales revenues Variable expenses Fixed expenses $250,000 $130,000 $ 70,000 The company's tax rate is 30% and its after-tax cost of capital is 10%. Required: 1. Compute the net present value of the project. (Hint. Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar. Negative value should be indicated with minus sign.) 2. Would you recommend that the project be undertaken? 1. Net present value 2. Would you recommend that the project be undertaken? Yes
Transcribed Image Text:Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $130,000. The equipment would have a useful life of five years and a $10,000 salvage value. The CCA rate for the equipment is 30%. After careful study, Winthrop estimated the following annual costs and revenues for the new product: Sales revenues Variable expenses Fixed expenses $250,000 $130,000 $ 70,000 The company's tax rate is 30% and its after-tax cost of capital is 10%. Required: 1. Compute the net present value of the project. (Hint. Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar. Negative value should be indicated with minus sign.) 2. Would you recommend that the project be undertaken? 1. Net present value 2. Would you recommend that the project be undertaken? Yes
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