The Sicilian Loan Company is considering opening a new office, and the relevant

Question

The Sicilian Loan Company is considering opening a new office, and the relevant data are shown below. The company owns the building, free and clear, and would sell it for $100,000 after taxes if it decides not to open the new loan office. The equipment that would be used has a 3-year tax life, would be depreciated by the straight line method over the project's 3-year life, and would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)

WACC=10 %
Opportunity Cost=$100,000
Net equipment cost(depreciable basis)=$65,000
Straight line depreciation rate=33.33%
Sales revenues=$110,000
Operating costs ecluding depreciation=$25,000
Tax Rate=35%

Explanation / Answer

The answer is $26,425 Hope this helps

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