Author Question: Easy Payment Loan Company is thinking of opening a new office, and the key data are shown below. ... (Read 13 times)

isam · **on:** Aug 7, 2023

Easy Payment Loan Company is thinking of opening a new office, and the key data are shown below. Easy Payment owns the building, free and clear, and it would sell it for $120,000 after taxes if the company decides not to open the new office. The equipment that would be used would be depreciated by the straight-line method over the project’s 3-year life, and would have a zero salvage value. An extra $6,000 of new working capital would be required to get this project running. Revenues and cash operating costs would be constant over the project’s 3-year life. What is the project’s NPV? (Hint: Cash flows are constant in Years 1–3 and the increased working capital will be recovered when this project ends. A simplified CCA is for mathematical convenience.)

WACC	9%
Net equipment capital cost	$85,650
Annual CCA deduction for equipment	$28,550
Sales revenues, each year	$210,000
Cash operating costs, each year	$30,000
Tax rate		36%

10.0%

◦

$116,940

◦

$110,604

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$118,672

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$119,915

lactosetheintolerant · **Reply #1 on:** Aug 7, 2023

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