Question

Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV?
WACC ....................................................... 10.0%
Opportunity cost .................................... $100,000
Net equipment cost (depreciable basis) ... $65,000
Straight-line depr. Rate for equipment .... 33.333%
Sales revenues, each year ....................... $141,000
Operating costs (excl. depr.), each year ... $25,000
Tax rate ......................................................... 35%




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  • CreatedAugust 26, 2013
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