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Finding a Project's NPV

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Easy Payment Loan Company is thinking of opening a new office, and the key data are shown below. Easy Payment owns the building, free and clear, and it would sell it for $100,000 after taxes if it decides not to open the new office. The equipment that would be used 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 10.0%
Opportunity cost $100,000
Net equipment cost (depreciable basis) $65,000
Straight-line depr'n rate for equipment 33.33%
Sales revenues, each year $150,000
Operating costs excl. depr'n, each year $25,000
Tax rate 35.0%

a. $47,940
b. $50,464
c. $53,120
d. $55,915
e. $58,711

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This provides the steps to calculate the Project's NPV

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WACC 10.0%
Opportunity cost $100,000
Net equipment cost (depreciable basis) $65,000
Straight-line depr'n rate for equipment 33.33%
Sales revenues, each year ...

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