Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown...

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Sub-Prime Loan Company is thinking of opening a new office, andthe key data are shown below. The company owns the building thatwould be used, and it could sell it for $100,000 after taxes if itdecides not to open the new office. The equipment for the projectwould be depreciated by the straight-line method over the project's3-year life, after which it would be worth nothing and thus itwould have a zero salvage value. No change in net operating workingcapital would be required, and revenues and other operating costswould be constant over the project's 3-year life. What is theproject's NPV? (Hint: Cash flows are constant in Years 1-3.) Do notround the intermediate calculations and round the final answer tothe nearest whole number. WACC 10.0% Opportunity cost $100,000 Netequipment cost (depreciable basis) $65,000 Straight-line depr. ratefor equipment 33.333% Annual sales revenues $146,000 Annualoperating costs (excl. depr.) $25,000 Tax rate 35%

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AnswerI provide below two results of NPV based on See Answer

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Sub-Prime Loan Company is thinking of opening a new office, andthe key data are shown below. The company owns the building thatwould be used, and it could sell it for $100,000 after taxes if itdecides not to open the new office. The equipment for the projectwould be depreciated by the straight-line method over the project's3-year life, after which it would be worth nothing and thus itwould have a zero salvage value. No change in net operating workingcapital would be required, and revenues and other operating costswould be constant over the project's 3-year life. What is theproject's NPV? (Hint: Cash flows are constant in Years 1-3.) Do notround the intermediate calculations and round the final answer tothe nearest whole number. WACC 10.0% Opportunity cost $100,000 Netequipment cost (depreciable basis) $65,000 Straight-line depr. ratefor equipment 33.333% Annual sales revenues $146,000 Annualoperating costs (excl. depr.) $25,000 Tax rate 35%