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McFann Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 5,500 Year 3 5,700 $42.57 Unit sales Sales price Variable cost per unit Fixed operating costs Year 2 5,200 $43.55 $22.97 $68,950 Year 4 5,820 $16.79 $23.87 $68,900 $44.76 $23.45 $69,690 $22.83 $66,750 This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at 1-0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. McFann pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be under the new tax law. Determine what the project's net present value (NPV) would be under the new tax law. O $74,349 $83,642 O $111,523 O $92,936 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 $400 for each year of the four-year project? O $1,241 O $745 O $1,365 $931 The project will require an initial 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 $12,000, 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 $12,000 Increase the NPV of the project by $12,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. 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 $118,994 $86,957 No other firm would take on this project if McFann turns it down. How much should MCF he NPV of this pre project would reduce one of its division's net after-tax cash flows by $400 for each year $91,534 year project? $105,264 $1,241 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. bonus No other fi on this project if McFann turns it down. How much should McFann reduce the NPV of this projec project wo straight-line of its division's net after-tax cash flows by $400 for each year of the four-year project

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