Sub-Prime Loan Company is thinking of opening a new office, and the key data are...
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Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number.
WACC 10.0%
Opportunity cost $100,000
Net equipment cost (depreciable basis) $65,000
Straight-line depr. rate for equipment 33.333%
Annual sales revenues $150,000
Annual operating costs (excl. depr.) $25,000
Tax rate 35%
a. 048,087
b. 55,915
c. 054,238
d. 061,507
e. 043,614
Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number.
| WACC | 10.0% |
| Opportunity cost | $100,000 |
| Net equipment cost (depreciable basis) | $65,000 |
| Straight-line depr. rate for equipment | 33.333% |
| Annual sales revenues | $150,000 |
| Annual operating costs (excl. depr.) | $25,000 |
| Tax rate | 35% |
| a. | 048,087 | |
| b. | 55,915 | |
| c. | 054,238 | |
| d. | 061,507 | |
| e. | 043,614 |
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