Reference no: EM133111283
-Sand Box is considering a proposal to enter a new line of business. In reviewing the proposal, the company's CFO is considering the following facts:
-The new business will require the company to purchase additional fixed assets that will cost P 300,000 at n=0. For tax and accounting purposes, these costs will be depreciated on a straight-line basis over three years. (Annual depreciation will be P100,000 per year at t=1, 2, and 3.)
-At the end of three years, the company will get out of the business and will sell the fixed assets at a salvage value of P50,000.
-The project will require a P25,000 increase in net operating working capital at t=0, which will be recovered at t=3.
-The company's marginal tax rate is 35%.
-The new business is expected to generate P1 million in sales each year at t=1, 2, and 3). The operating costs excluding depreciation are expected to be P700,000 per year.
-The projects cost of capital is 12%.
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