Used would be depreciated by the straight-line method

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TexMex Food Company is considering a new salsa 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 TexMex products and would reduce their pretax annual cash flows. What is the project’s NPV? (Hint: Cash flows are constant in Years 1–3.) WACC 10.0% Pre-tax cash flow reduction for other products (cannibalization) −$5,000 Investment cost (depreciable basis) $80,000 Straight-line depreciation rate 33.333% Annual sales revenues $67,500 Annual operating costs (excl. depreciation) −$25,000 Tax rate 35.0% . Show solution.

Reference no: EM13923669

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