This project would compete with other best products

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Reference no: EM131932766

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: EM131932766

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