Now determine what the projects NPV would be when using straight-line depreciation.

51,659

54,378

67,973

62,535

Using the depreciation method will result in the highest NPV for the project. No other firm would take on this project if McFann turns it down. How much should McFann reduce the NPV of this project if it discovered that this project would reduce one of its divisions net after-tax cash flows by $600 for each year of the four-year project?

$1,117

$1,582

$1,396

$1,861

McFann spent $1,500 on a marketing study to estimate the number of units that it can sell each year. What should McFann do to take this information into account?

The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.

Increase the NPV of the project $1,500.

Increase the amount of the initial investment by $1,500.