New project analysis

7. If using the 15^th edition of the text (or an earlier edition), refer to the Web Tax Appendix to correctly answer this question. Cornett Inc. is considering a new investment whose data are shown below. The required equipment will be used for 3 years during the projects 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 10%

Purchase price of equipment $250,000

Required new NOWC $25,000

Sales revenues $310,000

Operating costs $186,000

Before-tax salvage value $45,000

Tax rate 25%

a. $10,324.94

b. $27,229.53

c. $44,134.11

d. $53,525.55

e. $62,916.98