Easy Payment Loan Company Is Thinking of Opening a New

Multiple Choice

Easy Payment Loan Company is thinking of opening a new office, and the key data are shown below. Easy Payment owns the building, free and clear, and it would sell it for $100,000 after taxes if the company decides not to open the new office. The equipment that would be used would be depreciated by the straight-line method over the project's 3-year life, and would have a zero salvage value. An extra $5,000 of new working capital would be required to get this project running. Revenues and cash operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3 and the increased working capital will be recovered when this project ends. A simplified CCA is for mathematical convenience.) WACC10.0%
Net equipment capital cost$65,000
Annual CCA deduction for equipment$21,665
Sales revenues, each year$150,000
Cash operating costs, each year$25,000
Tax rate35.0%

A) $47,940
B) $50,464
C) $54,672
D) $55,915