If company has a 10 after tax weighted average cost of

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The Ambergast Corporation is considering a project that has a three-year life and costs $1,200. It would save $360 per year in operating costs and increase revenue by $200 per year. It would be financed with a three-year loan with the following payment schedule (the annual rate of interest is 5%):

 

Payment      Interest           Repayment of Principal             Balance     

440.65           60.00                      380.65                              819.35

440.65           40.97                       399.68                             419.67

440.65           20.98                       419.67                                   0                             

                     121.95                   1,200.00

If the company has a 10% after tax weighted average cost of capital, has a 40% tax rate, and uses straight-line depreciation, what is the net present value of the project?

Reference no: EM13475615

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