Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated

Question:

Foley Systems is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV?

WACC ................ 10.0%

Net investment in fixed assets (basis) ...$75,000

Required new working capital ......$15,000

Straight-line depr. rate ....... 33.333%

Sales revenues, each year .....$81,000

Operating costs (excl. depr.), each year ...$25,000

Tax rate ........... 35.0%

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...