Cornett Inc. is considering a new investment whose data are shown below. The required equipment will...
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Cornett Inc. is considering a new investment whose data are shown below. The required equipment will be used for 3 years during the project's life. The equipment qualifies for bonus depreciation, so it will be fully depreciated at the time of purchase. It will have a positive salvage value at the end of Year 3, when the project would be terminated. Also, some new net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? WACC Purchase price of equipment Required new NOWC Sales revenues Operating costs Before-tax salvage value Tax rate 10% $250,000 $25,000 $310,000 $186,000 $45,000 25% Cornett Inc. is considering a new investment whose data are shown below. The required equipment will be used for 3 years during the project's life. The equipment qualifies for bonus depreciation, so it will be fully depreciated at the time of purchase. It will have a positive salvage value at the end of Year 3, when the project would be terminated. Also, some new net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? WACC Purchase price of equipment Required new NOWC Sales revenues Operating costs Before-tax salvage value Tax rate 10% $250,000 $25,000 $310,000 $186,000 $45,000 25%
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Answer rating: 100% (QA)
SOLUTION To calculate the projects net present value NPV we need to determine the cash flows associated with the project and discount them to the present value using the weighted average cost of capit... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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