YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 19 - 20: Your company is thinking about taking on a new project. In analyzing the project, the financial staff has brought together the following information: 1. The new project will require an initial capital outlay of $42,000 at Year 0. This outlay will be used to purchase new equipment 2. This equipment will be depreciated using a MACRS 5-year class life (i.e., depreciated over 6 years). The depreciation table is below. 3. The equipment will have a salvage value of $5,000 at the end of four years. 4. Inventories will rise by $7,500 at Year 0, and accounts payable will rise by $5,000 at Year 0. This increase in net operating working capital will be recovered at the end of the project's life, Year 4. 5. The new project is expected to have an economic life of four years. The business is expected to generate sales of $50,000 at Year 1, $40,000 at Year 2, $30,000 at Year 3, and $25,000 at Year 4. Each year, operating costs (excluding depreciation) are expected to be 60 percent of sales. 6. The company expects to incur interest expense of $2,500 in each of the next 4 years. 7. Because of synergies with other divisions within the company, this project will add $4,000 of after-tax synergistic value each year. 8. The company's tax rate is 40 percent 9. The company is very profitable, so any accounting on this project can be used to reduce the company's overall tax burden. 10. The project's weighted average cost of capital (WACC) is 12 percent. Item Year 1 Year 2 Year 3 Year 4 Year 0 $42.000.00 Cost Depreciation Rate Depreciation Book Value 20.00% $8.400 $33,600 32.00% $13,440 $20,160 19.00% $7,980 $12,180 12.00% $5,040 $7,140 $42,000.00 19. What is the NPV for this project? A. $10,091.53 B. $11,103.98 $12,116.43 $13,128.88 E. 20. How high of an initial price can you payfor the new equipment? That is what cost will cause the NPV to be zero? $46,913 B. $51,110 C. $57,892 D. $62,239 E. $68,438 YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 19 - 20: Your company is thinking about taking on a new project. In analyzing the project, the financial staff has brought together the following information: 1. The new project will require an initial capital outlay of $42,000 at Year 0. This outlay will be used to purchase new equipment 2. This equipment will be depreciated using a MACRS 5-year class life (i.e., depreciated over 6 years). The depreciation table is below. 3. The equipment will have a salvage value of $5,000 at the end of four years. 4. Inventories will rise by $7,500 at Year 0, and accounts payable will rise by $5,000 at Year 0. This increase in net operating working capital will be recovered at the end of the project's life, Year 4. 5. The new project is expected to have an economic life of four years. The business is expected to generate sales of $50,000 at Year 1, $40,000 at Year 2, $30,000 at Year 3, and $25,000 at Year 4. Each year, operating costs (excluding depreciation) are expected to be 60 percent of sales. 6. The company expects to incur interest expense of $2,500 in each of the next 4 years. 7. Because of synergies with other divisions within the company, this project will add $4,000 of after-tax synergistic value each year. 8. The company's tax rate is 40 percent 9. The company is very profitable, so any accounting on this project can be used to reduce the company's overall tax burden. 10. The project's weighted average cost of capital (WACC) is 12 percent. Item Year 1 Year 2 Year 3 Year 4 Year 0 $42.000.00 Cost Depreciation Rate Depreciation Book Value 20.00% $8.400 $33,600 32.00% $13,440 $20,160 19.00% $7,980 $12,180 12.00% $5,040 $7,140 $42,000.00 19. What is the NPV for this project? A. $10,091.53 B. $11,103.98 $12,116.43 $13,128.88 E. 20. How high of an initial price can you payfor the new equipment? That is what cost will cause the NPV to be zero? $46,913 B. $51,110 C. $57,892 D. $62,239 E. $68,438