QUiz 5 -7 - 21 Swannee Resorts is considering a new project...

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21. Swannee Resorts 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 the project's 3 year life, and would have zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? If you are working this problem by hand rather than by computer, ignore small rounding differences between your answer and the choices given. (Hint: Cash flows are constant in Years 1-3.) WACC 10% Net investment cost (depreciable basis) $65,000 Straight line depr’n rate 33.33% Sales revenues $70,000 Operating costs excl. depr’n $25,000 Tax rate 35% $22,156.24 $23,791.14 $24,354.87 $25,189.71 $26,599.05 Answer: 26,599.05 22. Harmon Industries is considering adding a new store. As a final step in reviewing the proposed project, the CFO wants to take into account two real options that are attached to the proposed project. First, there is a timing option. One year from now, the company will have a much better idea of whether
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QUiz 5 -7 - 21 Swannee Resorts is considering a new project...

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