Party Place Is Considering a New Investment Whose Data Are

Multiple Choice

Party Place is considering a new investment whose data are shown below. The equipment that would be used would have a constant annual capital cost allowance over the project's 3-year life and a zero salvage value. This project would require some additional working capital that would be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3. CCA is modified to smooth out the calculations.) WACC10.0%
Net investment in fixed assets (basis) $65,000
Required new working capital$10,000
Annual capital cost allowance$21,665
Sales revenues, each year$70,000
Cash operating costs, each year$25,000
Tax rate35.0%

A) $24,112
B) $25,318
C) $26,584
D) $27,913