First question picturedSecond question : determine the projects NPv when using straight line depreciation. Third question: using the (-accelerated or straight line) depreciation method will result in the highest NPv for the project. Fourth question: no other firm would take on this project if yetman turns it down. How much should yeatman reduce nvp of this project if it discovered that this project would reduce one of its divisions net after tax cash flows by $500 for each year of the four year project ? Fifth question: Yeatman spent $1500 on a marketing study to estimate the number of units that it can sell each year. What should Yeatman do to take this information into account ?

Ch 12: Assignment - Cash Flow Estimation and Risk Analysis 3. Analysis of an expansion project 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 1 Year 2 Year 3 Year 4 Unit sales 3,500 4,000 4,200 4,250 Sales price $38.50 $39.88 $40.15 $41.55 Variable cost per unit $22.34 $22.85 $23.67 $23.87 Fixed operating costs except depreciation $37,000 $37,500 $38,120 $39,560 Accelerated depreciation rate 33% 45% 15% 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Yeatman 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. $45,696 $31,789 $39,736 $35,762