QUESTION 9 how much value will be forgone? Markman & Sons is considering Projects S and L. These projects are mutually exclusive, equally risky, and not repeatable and their cash flows are shown below. If the decision is made by choosing the project with the higher IRR, WACC 10.00% Year 0 2 3 CFS 4 -$1,025 $650 5450 $250 $50 CFI -$1,025 $300 $100 $500 $700 O $5.47 O $28.02 $6.62 O $24.35 O $7 82 QUESTION 10 Weston Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Weston's products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) WACC Pre-tax cash flow reduction for other products (cannibalization) 10.0% Investment cost (depreciable basis) $5,000 Straight-line deprec. rate $80,000 Sales revenues, each year for 3 years 33.333% Annual operating costs (excl. deprec.) $67,500 Tax rate $25,000 25.50% $5,828 O $3,828 $6,388 $4,220 $4,431