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Ch 12: Assignment - Cash Flow Estimation and Risk Analysis Campanas investition projects with the expectation of increasing the aming of its business Consider the case of McFann Co. MoFanno considering an intent that will have towing sales variable costs, and feed rating costs Year Year 2 Year Year 4 Unitales 5.500 5.200 5,700 5.620 Sales $42.57 143.55 360 Variable cost per unit 1223 122.97 12345 12367 Fixed operating costs 566.750 6.950 9.690 $68.900 This project will require an investment 125.000 in new tuipment. Under the new talaw, the count is eligible for 100% bonus deprecation - 0,50 will be fully depreciate the time of purchase. The quipment will have no calage value at the end of the projects four-year Mcforma constant tax rate of 25 and the weighted average cost of capital (WACC) of 11%. Determine what the project's et present va (NBV) would be under the new tax law. Determine what the projectes net present value (NIV) would be under the new tax law. 5111 523 592,936 583,642 5106876 Now determine what the projects NPV would te when using straight-line depreciati Using the depreciation method will result in the highest NPV for the project Now determine what the project's NPV would be when using straight-line depreciation Using the depreciation method will result in the highest NPV for the project. No other firm would take on this project if McFann turns it down. How much should McFann reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash flows by $700 for each year of the four-year project? $2,172 $1,846 $1,629 $2,389 The project will require an inittal investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $14,000, after taxes, if the project is rejected. What should McFann do to take this information into account? Increase the amount of the initial Investment by $14,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the NPV of the project by $14,000

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