Project Cost: 8000 + shipping and installation of 2000 next 5 years sales = 5000 and cost = 2000, not including depreciation Project being depreciated using straight line, 5 yrs, no salvage Tax = 40%, WACC = 10% NPV is closest to: A) -144 B) 144 C) 279 D) 1244
Answer A CF0=-10000 C01= 2600 (5000-2000-2000(Depr)) * (1-.4) = 600 + 2000 = 2600 (Add back depr). F1=5 NPV @10% = -144
yup A. Holy smokes…cpk - you must undoubtedly hold the record for fastest response/solving times!!!
Why do we have to add shipping and installation to the cost of equipment to calculate the depreciation? I’ve seen somewhere that they are treated differently. Do you think of any scenario where it happens? Thanks.
Shipping and installation costs are always added to the cost of the asset, since they are costs incurred to get the asset in place or ready for use. I can’t think of a scenario where they wouldn’t be added.
Bum. I keep missing subtracting Depr above the line then adding it back after. Must remember!