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. New working capital of $6,000 is required for inventory. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV and IRR?
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WACC
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10%
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Net investment cost (depreciable basis)
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$65,000
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Straight-line depreciation
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3 years
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Sales revenues, each year
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$65,500
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Operating costs (excl. deprec.) each year
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$25,000
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Working Capital for inventory
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$6,000
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Tax Rate
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35%
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a. NPV = $17,832 ; IRR = 23.89%