constant over the project's 3-year life. What is the project's Year 1 cash flow?
Question: Thomson Media is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, some new working capital would be required, but it would be recovered at the end of the project’s life. Revenues and other operating costs are expected to be constant over the project’s 3-year life. What is the project’s NPV? WACC10.0%Net investment in fixed assets (depreciable basis)$70,000Required new working capital$10,000Straight-line deprec. rate33.333%Sales revenues, each year$75,000Operating costs (excl. deprec.), each year$30,000Expected pretax salvage value$5,000Tax rate35.0%$20,762