Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used,

Century Roofing is thinking of opening a new warehouse, 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 warehouse. 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? (Hint: Cash flows are constant in Years 1-3.)

Project cost of capital (r) 10.0%

Opportunity cost $100,000

Net equipment cost (depreciable basis) $65,000

Straight-line deprec. rate for equipment 33.333%

Sales revenues, each year $123,000

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

Tax rate 25%

a. $31,254

b. $29,691

c. $26,796

d. $28,207

e. $32,817

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The New Public Finance

Authors: Inge Kaul, Pedro Condeicao

1st Edition

0195179978, 978-0195179972

More Books

Students also viewed these Finance questions