Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, additional net operating working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?

Question

Quizplus · Accepted Answer

The project's NPV calculation involves considering the initial investment, the annual cash flows from operations, the tax savings from depreciation, the recovery of net operating working capital, and the salvage value at the end of the project. The correct NPV is $23,005, which accounts for these factors discounted at the project's cost of capital.

Thomson Media Is Considering Some New Equipment Whose Data Are