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# Sub-Prime Loan Company: Project's NPV for new office

Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for \$100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it 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 deprec. rate for equipment 33.333%
Sales revenues, each year \$123,000
Operating costs (excl. deprec.), each year \$25,000
Tax rate 35%

#### Solution Summary

I did the work in excel so you could see the process. Click on cells to see the formulas and computations.

\$2.19