An analyst gathered the folowing data about a project: * costs are $8.000 plus $2.000 in shipping and installation * for the next five years the project will annually generate $5.000 in sales and $2.000 in costs, not including depreciation * the project is being depreciated on a straight line basis over five years with no salvage value * the company’s tax rate is 40% and the weighted average cost of capital is 10% The project’s NPV is closest to: A) - 144 B) 144 C) 279 D) 1.244
Annual After Tax Cash Flow: (Sales - Costs - Depreciation) * (1-T) + Depreciation = (5 - 2 - 2) * .6 + 2 = 2.6 Initial Cost: -10 Now do NPV calc: -144 Ans A CP
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