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 depr. rate for equipment 33.333%
Sales revenues, each year $141,000
Operating costs (excl. depr.), each year $25,000
Tax rate 35%
A)$10,521
B)$11,075
C)$11,658
D)$12,271
E)$12,885

Question

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 depr. rate for equipment 33.333% 
Sales revenues, each year $141,000 
Operating costs (excl. depr.), each year $25,000 
Tax rate 35% 
A)$10,521
B)$11,075
C)$11,658
D)$12,271
E)$12,885

Quizplus · Accepted Answer

The Answer of 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 depr. rate for equipment 33.333% 
Sales revenues, each year $141,000 
Operating costs (excl. depr.), each year $25,000 
Tax rate 35% 
A)$10,521
B)$11,075
C)$11,658
D)$12,271
E)$12,885

Sub-Prime Loan Company Is Thinking of Opening a New Office