Question: Fame Inc. is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the projects 3-year

Fame Inc. is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the projects 3-year life, would have a zero-salvage value, and would require additional net operating working capital that would be recovered at the end of the projects life. Annual sales revenues and operating costs are expected to be constant over the projects life. Do you recommend to accept or reject this project? Justify your opinion.

WACC Net investment in fixed assets (basis) Required net operating working capital Straight-line depreciation rate Annual sales revenues Annual operating costs (excl. depreciation) Tax rate

10.0% 75,000 15,000 33.333% 75,000 25,000 35.0%

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