Question: Doublemeat Palace is considering a new plant for a temporary
Doublemeat Palace is considering a new plant for a temporary customer, and its finance department has determined the following characteristics. The company owns much of the plant and equipment to be used for the product. This equipment was originally purchased for $ 90,000; however, if the project is not undertaken, this equipment will be sold for $ 50,000 after taxes; in addition, if the project is not accepted, the plant used for the project could be sold for $ 105,000 after taxes— the plant originally cost $ 40,000. The rest of the equipment will need to be purchased at a cost of $ 150,000. This new equipment will be depreciated by the straight-line method over the project’s 3- year life, after which it will have zero salvage value. No change in net operating working capital would be required, and management expects revenues resulting from this new project to be $ 234,000 per year for 3 years, while increased operating expenses, excluding depreciation, are expected to be $ 82,000 per year over the project’s 3- year life. The average tax rate is 25 percent and the marginal tax rate is 30 percent. The required rate of return for this project is 8 percent. What is the project’s
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