Kids\' Place is considering a new investment whose data are shown below. The equ
ID: 2674808 • Letter: K
Question
Kids' Place is considering a new investment whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated on a straight line basis over the project's 3-year life, would have zero salvage value, and would require some new working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to 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%
Net equipment cost (depreciable basis) $65,000
Required new working capital $10,000
Straight line depr
Explanation / Answer
What is the project's NPV? npv=-c0+r(t)/(1+i)^t c0 is the initial investment , t is the time in years and r is the revenue over years so investment=Net equipment cost (depreciable basis) $65,000+Operating costs excl. depr’n $25,000 revenues=Required new working capital $10,000+Sales revenues $70,000 and i =35%
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