TexMex Products Is Considering a New Salsa Whose Data Are

Multiple Choice

TexMex Products is considering a new salsa whose data are shown below. The equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce the company's pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3. Actual CCA varies. The proposed CCA is for computational convenience.) WACC10.0%
Pre-tax cash flow reduction in other products (cannibalization) $5,000
Investment cost$65,000
Annual capital cost of allowance$21,665
Annual sales revenues$75,000
Annual cash operating costs$25,000
Tax rate35.0%

A) $25,269
B) $26,599
C) $27,929
D) $29,325