ABC Corp 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 its 3-year life at 33 1/3% per year. The economic life of the project is four years, and the equipment would be estimated to sell at $20,000 at the end of the four years. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 4-year life. What is the project's NPV?
Risk-adjusted WACC
16.0%
Net investment cost (depreciable basis)
$90,000
Straight-line deprec. rate
33.3333%
Sales revenues, each year
$65,000
Operating costs (excl. deprec.), each year
$25,000
Tax rate
35.0%
$8,651
$9,924
$11,881
$13,514
$19,325
ABC Corp 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 its 3-year life at 33 1/3% per year. The economic life of the project is four years, and the equipment would be estimated to sell at $20,000 at the end of the four years. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 4-year life. What is the project's NPV?
Risk-adjusted WACC
16.0%
Net investment cost (depreciable basis)
$90,000
Straight-line deprec. rate
33.3333%
Sales revenues, each year
$65,000
Operating costs (excl. deprec.), each year
$25,000
Tax rate
35.0%
$8,651
$9,924
$11,881
$13,514
$19,325
Related questions
A company recently hired you as a consultant to help with its capital budgeting process. The company 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 its 3-year life, and would have a 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, IRR and Payback period?
| Risk-adjusted WACC | 10.0% |
| Net investment cost (depreciable basis) | $65,000 |
| Straight-line deprec. rate | 33.3333% |
| Sales revenues, each year | $65,500 |
| Operating costs (excl. deprec.), each year | $25,000 |
| Tax rate | 35.0% |
