Author Question: TexMex Products is considering a new salsa whose data are shown below. The equipment has a constant ... (Read 69 times)

elarge · **on:** Aug 7, 2023

TexMex Products is considering a new salsa whose data are shown below. The 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 TexMex products and would reduce the company’s pre-tax annual cash flows. What is the project’s NPV? (Hint: Cash flows are constant in Years 1 to 3. Actual CCA varies. The proposed CCA is for computational convenience.)

WACC	11%
Pre-tax cash flow reduction in other products (cannibalization)	$6,000
Investment cost	$77,340
Annual capital cost of allowance	$25,780
Annual sales revenues	$89,000
Annual cash operating costs	$31,000
Tax rate	36%

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$26,666

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$34,599

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$35,125

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$35,740

gwisel · **Reply #1 on:** Aug 7, 2023

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