and Study Tools Options Success Tips Success Tips edback Companies invest in expansion projects with the expectation of increasing the earnings of its business Consider the case of Yeatman Ce Yatman Co. is considering an investment that will have the following sales, vartate costs and fixed operating co Year 1 Year 2 Year 3 Year 4 4,200 4,100 4,300 Unit sa Sales price $29.82 $30.00 $30.31 4,400 $33.19 $14.02 $14.55 $40,100 Variable cont per un $12.15 413.45 Fixed operating costs $41,000 $41,670 $41.890 surr This project will require an investment of $10,000 in new equipment. Under the new tax law, the egument s eple for 100% b -0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the Yatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of L1% Determine what the posts p value (NPV) would be under the new tax law Determine what the project's net present value (NPV) would be under the new tas la $60,329 O $67,012 O $80,438 O $77,087 Now determine what the project's NPV would be when wang streghe daton S O Now determine what the project's NPV would be when using straight-ne depreciation. Using the depreciation method will result in the highest NPV for the project No other firm would take on this project if Yeatman turns it down. How much should Yeatman reduce the tiPV of this project # it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? O $1,846 O $1,629 $2,172 O $2,389 The project will require an initial investment of $10,000, but the project will also be using a company-owned truck that is not currently being used This truck could be sold for $18,000, after taxes, if the project is rejected. What should Yeatman do to take this information into account? The company does not need to do anything with the value of the truck because the truck is a sunk cost. O Increase the NPV of the project by $18,000 O Increase the amount of the initial investment by $18,000. Grade It Now Save & Continue Continue without saving AZ M Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs Year 4 Year 1 4,200 $29.82 Year 2 4,100 Year 3 4,300 Unit sales 4,400 Sales price $30.00 $30.31 $33.19 Variable cost per unit $12.15 $13.45 $14.02 $14.55 Fixed operating costs $41,000 $41,670 $41,890 $40,100 This project will require an investment of $10,000 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 afe Yeatman pays a 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. Determine what the project's net present value (NPV) would be under the new tax law O $60,329 167,032 A-Z am C N P ady Tools Tips Tips O 167,032 O $80,438 O $77,087 Now determine what the project's NPV would be when using straight-line depreciation Using the depreciation method will result in the highest NPV for the project No other firm would take on this project if Yeatman turns it down. How much should Yeatman reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? $1,846 $1,629 $2,172 12,389 The project will require an initial investment of $10,000, but the project will also be using a company-owned truck that is net currently being used This truck could be sold for $18,000, after taxes, if the project is rejected. What should Yeatman do to take this information into account O The company does not need to do anything with the value of the truck because the truck is a sunk cost Increase the NPV of the project by $18,000. O Increase the amount of the initial investment by $18,000. Save & Continue AX N M 4