Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed...

 

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Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit. Fixed operating costs O $66,938 O $64,149 Year 1 Year 3 4,300 4,200 $29.82 $30.31 $12.15 $13.45 $14.02 $14.55 $41,000 $41,670 $41,890 $40,100 This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 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 constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. $50,204 Year 2 4,100 $30.00 Determine what the project's net present value (NPV) would be under the new tax law. O $55,782 Year 4 4,400 $33.19 A-2 om N A Now determine what the project's NPV would be when using straight-line depreciation. Using the No other firm would take on this project if Yeatman turns down. How much should Yea project would reduce one of its division's net after-tax cash flows by $600 for each year O $1,861 O $1,396 depreciation method will result in the highest NPV for the O $2,047 O $1,582 $70,691 $62,535 $67,973 $54,378 ce the NPV of this project if it discovered that this -year project? The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $12,000, after taxes, the project is rejected. What should Yeatman do to take this information into account? O Increase the NPV of the project by $12,000. O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the amount of the initial investment by $12,000. Grade It Now Save & Continue Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit. Fixed operating costs O $66,938 O $64,149 Year 1 Year 3 4,300 4,200 $29.82 $30.31 $12.15 $13.45 $14.02 $14.55 $41,000 $41,670 $41,890 $40,100 This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 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 constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. $50,204 Year 2 4,100 $30.00 Determine what the project's net present value (NPV) would be under the new tax law. O $55,782 Year 4 4,400 $33.19 A-2 om N A Now determine what the project's NPV would be when using straight-line depreciation. Using the No other firm would take on this project if Yeatman turns down. How much should Yea project would reduce one of its division's net after-tax cash flows by $600 for each year O $1,861 O $1,396 depreciation method will result in the highest NPV for the O $2,047 O $1,582 $70,691 $62,535 $67,973 $54,378 ce the NPV of this project if it discovered that this -year project? The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $12,000, after taxes, the project is rejected. What should Yeatman do to take this information into account? O Increase the NPV of the project by $12,000. O The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the amount of the initial investment by $12,000. Grade It Now Save & Continue

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Solution The beta is an average beta with weights equals to 60 and 40 B of Portf... View the full answer