Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Fox Co.: Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Fox pays at constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Year 3 Year 1 Year 2 5,500 5,200 5,700 $42.57 $43.55 $44.76 $22.83 $22.97 $23.45 $66,750 $68,950 $69,690 15% 33% 45% O $82,622 O $66,098 O $99,146 O $74,360 Year 4 5,820 $46.79 $23.87 $68,900 7% Determine what the project's net present value (NPV) would be when using accelerated depreciation.

Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Fox Co.: Fox Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs except depreciation Accelerated depreciation rate This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Fox pays at constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. Year 3 Year 1 Year 2 5,500 5,200 5,700 $42.57 $43.55 $44.76 $22.83 $22.97 $23.45 $66,750 $68,950 $69,690 15% 33% 45% O $82,622 O $66,098 O $99,146 O $74,360 Year 4 5,820 $46.79 $23.87 $68,900 7% Determine what the project's net present value (NPV) would be when using accelerated depreciation.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1PB

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