Your firm is considering launching a new operation. The firm's marginal income tax rate is 18%. The corporation needs a return of 11% on

new investment projects

Engineering estimates that the machinery needed for the operation will cost $3,000,000. These assets will be depreciated over five years by the straight-line method down to a value of zero. The operating life of the equipment is also five years. At the end of this time you guess that the machinery can be sold for scrap for $200,000. Any capital gains or losses associated with the resell will be treated at the firm's marginal tax rate.

The marketing department estimates that annual sales will be around $1,800,000 per year. The accounting department estimates that annual fixed costs will be $275,000, and the variable costs are about 35% of sakes.

Calculate the net present value if third operation.

Answer rating: 100% (QA)

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