Swannee Resorts is considering a new project whose data are shown below. The equipment that would be

Question:

Swannee Resorts is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight line method over the project's 3 year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?

WACC ................10%

Net investment cost (depreciable basis) ....$65,000

Straight line depr™n rate .........33.33%

Sales revenues .............$70,000

Operating costs excl. depr™n .......$25,000

Tax rate .................35%

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...