Majestic Theaters is considering investing in some new projection equipment whose data are shown below. The required equipment has a 7-year project life falling into a CCA class of 30%, but it would have a positive pre-tax salvage value at the end of Year 7. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 7-year life. What is the project's NPV? WACC 12.0% Net capital investment in fixed assets $950,000 Required new working capital Sales revenues, each year Cash operating costs, each year $30,000 $580,000 $330,000 Expected salvage value (fixed assets) $50,000 Tax rate a. $13,965 b. $15,226 c. $16,920✓ d. $17,882 35.0%
Majestic Theaters is considering investing in some new projection equipment whose data are shown below. The required equipment has a 7-year project life falling into a CCA class of 30%, but it would have a positive pre-tax salvage value at the end of Year 7. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 7-year life. What is the project's NPV? WACC 12.0% Net capital investment in fixed assets $950,000 Required new working capital Sales revenues, each year Cash operating costs, each year $30,000 $580,000 $330,000 Expected salvage value (fixed assets) $50,000 Tax rate a. $13,965 b. $15,226 c. $16,920✓ d. $17,882 35.0%
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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