Your company is considering taking on a new project that will cost $200,000. It is estimated that thesystem will increase sales/revenues by $150,000 annually for Years 1-6. Operating expenses, otherthan depreciation, are expected to be equal to 60 percent of sales in each year. The system will bedepreciated on a MACRS basis over 5 years (depreciation rates are 20%, 32 %, 19%, 12% 11%, and6%) to a zero book value, but the expected salvage at Year 6 is $40,000. The firm will also berequired to invest $25,000 in net working capital at Year 0, but will recapture this amount at Year 6.You may assume that the tax rate on ordinary income is 40 percent (record negative taxes as apositive cash flow). As you can calculate, the IRR for this project is 13.02%. If we assume that thefirm's cost of capital for this project is 9 percent, then what is the NPV for this project?$6,874.69$13,915.29$29,055.63$21.301.58O $37,201.15

Net present value(NPV) is the difference between present value of all cash inflows and initial…

Answered: Your company is considering taking on a…

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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Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000. 2-Draw a BTCFD
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