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New project NPV . Foxglove Corp. is faced with an investment project. The following information is associated with this project: MACRS Depreciation Year Net Income* Rate 1 $50,000 0.33 2 60,000 0.45 3 70,000 0.15 4 60,000 0.07 *Assume no interest expenses and a zero tax rate. The project involves an initial investment of $100,000 in equipment that falls in the 3-year MACRS class and has an estimated salvage value of $15,000. In addition, the company expects an initial increase in net operating working capital of $5,000 that will be recovered in Year 4. The cost of capital for the project is 12 percent. What is the project’s net present value? (Round your final answer to the nearest whole dollar.) New project NPV . Pierce Products is deciding whether it makes sense to purchase a new piece of equipment. The equipment costs $100,000 (payable at t = 0). The equipment will provide before-tax cash inflows of $45,000 a year at the end of each of the next four years (t = 1, 2, 3, and 4). The equipment can be depreciated according to the following schedule: MACRS Depreciation Year Rate 1 0.33 2 0.45 3 0.15 4 0.07 At the end of four years the company expects to be able to sell the equipment for an after-tax salvage value of $10,000. The company is in the 40 percent tax bracket. The company has an after-tax cost of capital of 11 percent. Because there is more uncertainty about the salvage value, the company has chosen to discount the salvage value at 12 percent. What is the net present value (NPV) of purchasing the equipment? New project NPV . Lugar Industries is considering an investment in a proposed project that requires an initial expenditure of $100,000 at t = 0. This expenditure can be depreciated at the following annual rates: MACRS Depreciation Year Rate 1 0.20 2 0.32 3 0.19 4 0.12 5 0.11 6 0.06 The project has an economic life of six years. The project’s revenues are forecasted to be $90,000 a year. The project’s operating costs (not including depreciation) are forecasted to be $50,000 a year. After six years, the project’s estimated salvage value is $10,000. The company’s WACC is 10 percent, and its corporate tax rate is 40 percent. What is the project’s net present value (NPV)? New project NPV . Mills Mining is considering an expansion project. The proposed project has the following features: • The project has an initial cost of $500,000. This is also the amount that can be depreciated using the following depreciation schedule: MACRS Depreciation Year Rate 1 0.33 2 0.45 3 0.15 4 0.07
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