DeVault Services recently hired you as a consultant to help with its capital bud
ID: 2778848 • Letter: D
Question
DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below.
The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value.
No new working capital would be required.
Revenues and other operating costs are expected to be constant over the project's 3-year life.
What is the project's NPV?
Risk-adjusted WACC
10.0%
Net investment cost (depreciable basis)
$65,000
Straight-line deprec. rate
33.3333%
Sales revenues, each year
$65,500
Operating costs (excl. deprec.), each year
$25,000
Tax Rate 35%
Risk-adjusted WACC
10.0%
Net investment cost (depreciable basis)
$65,000
Straight-line deprec. rate
33.3333%
Sales revenues, each year
$65,500
Operating costs (excl. deprec.), each year
$25,000
Tax Rate 35%
Explanation / Answer
Net Profits per year after taxes 12243.075 Sales less OPEX less Depreciation 65,000 X 33.33% less 35% taxes NPV of the Project for De Vault Services 31,412.25 $
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