Reduce their pre-tax annual cash flows

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Reference no: EM131940000

Best Food Company is considering a new product whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Best products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Discuss the results. WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) −$5,000 Investment cost (depreciable basis) $80,000 Annual sales revenues $67,500 Annual operating costs (excl. depreciation) −$25,000 Tax rate 35.0%.

Reference no: EM131940000

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