Creative Software Corporation is considering a new project whose data are shown below. The required equipment...

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Creative Software Corporation is considering a new project whosedata are shown below. The required equipment has a 3-year tax life,after which it will be worthless, and it will be depreciated byMACRS over 3 years. Revenues and other operating costs are expectedto be constant over the project’s 3-year life. The WACC is 8%. Whatis the project’s NPV? Briefly discuss your results.
Equipment cost $65,000
Sales Revenue each year $60,000
OperatingCosts               $25,000
SalvageValue                 $15,000
TaxRate                          35%

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3.7 Ratings (683 Votes)

Initial investment in Equipment 65000 Cash flow in year 0 Initial investment in equipment 65000 Calculating Depreciation Depreciation for a year under MACRS 3 year class Rate of depreciation for a year under MACRS 3 year class x Initial investment in equipment Depreciation for year 1 rate for year 1 x initial investment in equipment 3333 x 65000 2166450 Similarly depreciation can be found out for other years Depreciation under 3 year MACRS class Year 1 2 3 Depreciation rate 3333 4445 1481 See Answer

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Creative Software Corporation is considering a new project whosedata are shown below. The required equipment has a 3-year tax life,after which it will be worthless, and it will be depreciated byMACRS over 3 years. Revenues and other operating costs are expectedto be constant over the project’s 3-year life. The WACC is 8%. Whatis the project’s NPV? Briefly discuss your results.Equipment cost $65,000Sales Revenue each year $60,000OperatingCosts $25,000SalvageValue $15,000TaxRate 35%