Purchase Solution

Calculating NPV in the given case

Not what you're looking for?

Ask Custom Question

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 new 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 pre-tax 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 depr. rate 33.333%
Sales revenues, each year for 3 years $73,500
Annual operating costs (excl. depr.) -$25,000
Tax rate 35.0%

Purchase this Solution

Solution Summary

Solution describes the steps to calculate NPV in the given case.

Solution Preview

Please refer attached file for better clarity of tables.

Solution:
Initial Investment=Co=80,000.00
Salvage Value=S=0.00
Useful Life=n=3 years
Depreciation per year=(Co-S)/n=26,666.67

Sales Revenue per year=73,500.00
Operating ...

Solution provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.