Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:Year 1Year 2Year 3Unit sales3,5004,0004,200Sales price$38.50$39.88$40.15Variable cost per unit$22.34$22.85 $23.67Fixed operating costs $37,000 $37,500 $38,120This project will require an investment of $15,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation att = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life.Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net presentvalue (NPV) would be under the new tax law.Which of the following most closely approximates what the project's net present value (NPV) would be under the new tax law?(Hint: Round your finalanswer to two decimal places and choose the value that most closely matches your answer.)O $63,521.64O $49,712.59Year 44,250$41.55$23.87$39,560O $66,283.45O $55,236.21Which of the of the following most closely approximates what the project's NPV would be when using straight-line depreciation? (Hint: Round yourfinal answer to two decimal places and choose the value that most closely matches your answer.)

The steps involved in the computation of the net present value of a project are:1. Calculate the…

Answered: Yeatman Co. is considering an…

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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A project using passive heating/cooling design concepts to reduce energy costs requires an investment of $125,000 in equipment (straight-line depreciation with a 10-year depreciable life and $0 salvage value), and $30,000 in labor (not depreciable). At the end of 10 years, the project will be terminated. Assuming a combined tax rate of 26% and after-tax MARR of 15%, determine the project’s after-tax present worth.
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Gateway Communications is considering a project with an initial fixed assets cost of $1.58 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $237,000. The project will not change sales but will reduce operating costs by $393,000 per year. The tax rate is 34 percent and the required return is 11.2 percent. The project will require $50,500 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice $242,544 $202,140 $250,629 $233,215 $193,351
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