Weston Clothing Company Is Considering Manufacturing a New Style of Shirt

Weston Clothing Company is considering manufacturing a new style of shirt, whose data are shown below.The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required.Revenues and other operating costs are expected to be constant over the project's 3-year life.However, this project would compete with other Weston's products and would reduce their pre-tax annual cash flows.What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) $\begin{array}{lr}\text { Cost of capital } & 10.0 \% \\\text { Pre-tax cash flow reduction for other products (cannibalization) } & \$ 5,000 \\\text { Investment cost (depreciable basis) } & \$ 80,000 \\\text { Straight-line deprec. rate } & 33.333 \% \\\text { Sales revenues, each year for 3 years } & \$ 67,500 \\\text { Annual operating costs (excl. deprec) } & \$ 25,000 \\\text { Tax rate } & 25.0 \%\end{array}$

A) $6,196
B) $6,522
C) $6,848
D) $7,190
E) $7,550