90.2K

Verified Solution

Link Copied!

please help! will leave a good review!

3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: This project will require an investment of $25,000 in new equipment. Under the new tax law, the equipment is eligible for 100% borius deprecation at t=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. Yeatman pays a constant tax rate of 25%, and it has a weighted average cost of capital (WacC) of 11%. Determine what the projects net present value (NPV) would be under the new tax law. Which of the following most closely approximates what the project's net present value (NPV) would be under the new tax law?(Hint: Round your linal answer to two decimal piaces and choose the value that most closely matches your answer.) $38,188.97$47,736.21$42,962.59$54,896.64 Which of the of the following most closely approximates what the projects Npv would be when using straight-line depreciation? (Hint: Round your finel answer to two decimal ploces and choose the value that most cosely matches your answer.) $46,333.78$53,283,85$57,917.23$44,017.09 Using the depreciation method will result in the highest NPV for the project. No other firm would take on this project if Yeatman turns it down. Which of the foliowing most closely approximates how much Yeatman should reduce the NPV of this project, assuming it is discovered that this project would reduce one of its division's net after-tax cash flows by $500 for each year of the four-year project? (Hint: Rocind your final answer to two decimal places and choose the value that most closely matches your answer) $1,551.22 $930.73 51,163,42 $1,318.54 Yeatman spent $1,500 on a marketing study to estimate the number of units that it can sell each year. What should Yeatman do to take this intormation into account? Increase the amaunt of the initial investment by 51,500 . Increase the NPV of the project $1,500. The company does not need to do amything with the cost of the marketing study because the marketing study is a sunk cost

Answer & Explanation Solved by verified expert

See Answer