Question: You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant annual capital cost allowance
You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant annual capital cost allowance over the projects 3-year life and a zero salvage value. This project would require some additional working capital that would be recovered at the end of the projects life. Revenues and cash operating costs are expected to be constant over the projects 3-year life. What is the projects NPV?
| WACC | 12.0% |
| Net investment in fixed assets (basis) | $85,000 |
| Required new working capital | $15,000 |
| Annual capital cost allowance | $21,665 |
| Sales revenues, each year | $80,000 |
| Cash operating costs, each year | $25,000 |
| Tax rate | 25.0% |
| a. | $27,322 | |
| b. | $29,706 | |
| c. | $22,761 | |
| d. | $20,666 |
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