Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the company's pre-tax annual cash flows. What is the project's NPV? WACC 10.0% Pre-tax cash flow reduction in other products 5,000 Net investment in fixed assets 65.000 Annual capital cost allowance 21.665 Sales revenues, each year 75.000 Cash operating costs, each year 25.000 Tax rate 35.0% a. 25,269 Ob. 29,325 C. 26.598 Od. 27.929

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital
cost allowance over its 3-year life with a zero salvage value. No new working capital would be required.
Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this
project would compete with other Alberta Pasta products and would reduce the company's pre-tax annual
cash flows. What is the project's NPV?
WACC
10.0%
Pre-tax cash flow reduction in other products 5,000
Net investment in fixed assets
65.000
Annual capital cost allowance
21.665
Sales revenues, each year
75.000
Cash operating costs, each year
25.000
Tax rate
35.0%
a.
25,269
Ob. 29,325
C.
26.598
Od. 27.929
Transcribed Image Text:Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the company's pre-tax annual cash flows. What is the project's NPV? WACC 10.0% Pre-tax cash flow reduction in other products 5,000 Net investment in fixed assets 65.000 Annual capital cost allowance 21.665 Sales revenues, each year 75.000 Cash operating costs, each year 25.000 Tax rate 35.0% a. 25,269 Ob. 29,325 C. 26.598 Od. 27.929
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