Your firm is considering a new market project. The project will require an equipment purchase of...

 

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Your firm is considering a new market project. The project will require an equipment purchase of $250,000. The equipment also requires a delivery fee of $25,000. The project will generate revenue in the amount of $350,000 each year for three years. Annual costs will be 15% of revenue. At the end of three years, the equipment can be sold for $75,000. The firm is in the 30% tax bracket. The equipment will be depreciated using a three-year life and straight-line method. The firm has a 10% weighted average cost of capital. a. What is the project's annual depreciation expense? b. What is the project's terminal cash flow? c. Using the best capital budgeting metric, should you accept or reject the project? Why? Your firm is considering a new market project. The project will require an equipment purchase of $250,000. The equipment also requires a delivery fee of $25,000. The project will generate revenue in the amount of $350,000 each year for three years. Annual costs will be 15% of revenue. At the end of three years, the equipment can be sold for $75,000. The firm is in the 30% tax bracket. The equipment will be depreciated using a three-year life and straight-line method. The firm has a 10% weighted average cost of capital. a. What is the project's annual depreciation expense? b. What is the project's terminal cash flow? c. Using the best capital budgeting metric, should you accept or reject the project? Why?

Answer rating: 100% (QA)

Answer a Projects annual depreciation expense Straightline depreciation spreads the cost of the equipment excluding delivery fee evenly over its usefu... View the full answer