Orange Logistic is thinking of opening a new warehouse, 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 warehouse. 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 cost would be constant over the project’s 3-year life. What t 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 deprec. Rate for equipment 33.333%
Sales revenues, each year$123,000.
Operating costs (excl. deprec.), each year$25,000.
Tax rate35%
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