Chapter 12: Cash Flow Estimation and Risk Analysis
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63. Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3–
year tax life. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will
be fully depreciated at t = 0. The equipment would have a zero salvage value at the end of the project’s life. No change in
net operating working capital (NOWC) would be required. Revenues and operating costs are expected to be constant over
the project’s 3-year life. What is the project’s NPV? Do not round the intermediate calculations and round the final answer
to the nearest whole number.
Risk-adjusted WACC 10.0%
Equipment cost $65,000
Sales revenues, each year $55,500
Annual operating costs $25,000
Tax rate 25.0%
a. $10,236
b. $3,350
c. $2,592
d. $8,137
e. $2,908
Chapter 12: Cash Flow Estimation and Risk Analysis
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e. $13,648
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70. Foley Systems is considering a new project whose data are shown below. Under the new tax law, the equipment for
the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. After the project’s 3-year life,
the equipment would have zero salvage value. The project would require additional net operating working capital
(NOWC) that would be recovered at the end of the project’s life. Revenues and operating costs are expected to be constant
over the project’s life. What is the project’s NPV? (Hint: Cash flows from operations are constant in Years 1 to 3.) Do not
round the intermediate calculations and round the final answer to the nearest whole number.
WACC 10.0%
Equipment cost $75,000
Required net operating working capital (NOWC) $15,000
Annual sales revenues $73,000
Annual operating costs $25,000
Tax rate 25.0%
a. $2,549
b. $18,970
c. $4,571
d. $20,001
e. $1,348
Chapter 12: Cash Flow Estimation and Risk Analysis
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d. $57.1
e. $51.9