Temple Corp.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 change in net operating 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? Do not round the intermediate calculations and round the final answer to the nearest whole number.
? $$\begin{array} { l r }
\text { Risk-adjusted WACC } & 10.0 \% \
\text { Net investment cost (depreciable basis) } & \$ 65,000 \
\text { Straight-line depr. rate } & 33.3333 \% \
\text { Sales revenues, each year } & \$ 71,500 \
\text { Annual operating costs (excl. depr.) } & \$ 25,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
?
A) $25,831
B) $33,377
C) $34,828
D) $29,023
E) $22,928

Question

Temple Corp.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 change in net operating 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? Do not round the intermediate calculations and round the final answer to the nearest whole number.
? $$\begin{array} { l r } 
\text { Risk-adjusted WACC } & 10.0 \% \
\text { Net investment cost (depreciable basis) } & \$ 65,000 \
\text { Straight-line depr. rate } & 33.3333 \% \
\text { Sales revenues, each year } & \$ 71,500 \
\text { Annual operating costs (excl. depr.) } & \$ 25,000 \
\text { Tax rate } & 35.0 \%
\end{array}$$
?
A) $25,831
B) $33,377
C) $34,828
D) $29,023
E) $22,928

Quizplus · Accepted Answer

The project's NPV can be calculated using the given data. First, calculate the annual depreciation, operating cash flows, and then the NPV.1. **Depreciation**: The equipment's cost is $65,000, and it is depreciated over 3 years using straight-line depreciation. Thus, annual depreciation = $65,000 / 3 = $21,666.67.2. **Operating Cash Flows (OCF)**: Use the formula OCF = (Sales - Operating Costs - Depreciation) * (1 - Tax Rate) + Depreciation.   - Yearly OCF = ($71,500 - $25,000 - $21,666.67) * (1 - 0.35) + $21,666.67 = $46,500 - $21,666.67 = $24,833.33 * 0.65 + $21,666.67 = $16,141.67 + $21,666.67 = $37,808.34.3. **NPV Calculation**: Use the formula NPV = -Initial Investment + Σ[OCF / (1 + WACC)^t].   - NPV = -$65,000 + $37,808.34 / (1 + 0.10)^1 + $37,808.34 / (1 + 0.10)^2 + $37,808.34 / (1 + 0.10)^3.   - NPV = -$65,000 + $34,371.22 + $31,246.56 + $28,405.05 = -$65,000 + $94,022.83 = $29,022.83.Therefore, the correct answer is D) $29,023, rounding to the nearest whole number.

Temple Corp ? A) $25,831 B) $33,377 C) $34,828 D) $29,023 E)

Temple Corp ?
A) $25,831
B) $33,377
C) $34,828
D) $29,023
E)