Ch 11: Assignment - Cash Flow Estimation and Risk Analysis Attempts: 0 Keep the Highest: 074 2. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Fox Co.: Fox Co. is considering an investment that will have the following sales, variable costs, and foed operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate Year 1 3,500 $38.50 $22.34 $37,000 33% Year 2 4,000 $39.88 $22.85 $37,500 45% Year 3 Year 4 4,200 4.250 $40.15 $41.55 $23.67 $23.87 $38,120 $39,560 15% A7% This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Fox pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Determine what the project's net present value (NPV) would be when using accelerated depreciation. $36,372 $32,735 $29,098 $41,828 Now determine what the project's NPV would be when using straight-line depreciation. $46,729 $41,337 $34,148 Using the depreciation method will result in the highest NPV for the pr$35.945 Ch 11: Assignment - Cash Flow Estimation and Risk Analysis ACCU LITTLE - 3 This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Fox pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Determine what the project's net present value (NPV) would be when using accelerated depreciation. $36,372 $32,735 $29,098 $41,828 Now determine what the project's NPV would be when using straight-line depreciation. $46,729 $41,337 $34,148 Using the depreciation method will result in the highest NPV for the pl $35.945 No other firm would take on this project if Fox turns it down. How much should Fox 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 $600 for each year of the four-year project? $1,117 $1,861 $1,582 $1,396 Grade li Now Save lice MAC2A 0232004-2016 ADIDAS Continue with