Wanda owns a company selling inflatable unicorn horns for cats. Wanda is expanding by buying an additional machine to make inflatable unicorn horns that costs $62,000, has a zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $28,000 more per year. It further expects additional annual cash costs to be $18,000 per year. Its cost of capital is 8%. The tax rate is 35%.
Required:
a) Calculate the NPV.
b) Later, Wanda's finance manager suggested that it was possible that annual cash revenues could be as much as 10% higher per year, while cash costs remained at $18,000 per year. Calculate the new NPV.
c) Suggest reasonable, plausible options that would make the project more viable (there are several reasonable answers.)
d) What would you do if you were Wanda?