TexMex Food Company Is Considering a New Salsa Whose Data

question 40

Multiple Choice

TexMex Food Company is considering a new salsa whose data are shown below.The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required.Revenues and other 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 their pre-tax annual cash flows.What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.)
WAAC = 10%
Pre tax cash flow reduction for other products(cannibalization) = $5,000
Investment costs(depreciable basis) = $80,000
Straight line depr rate = 33.333%
Sales revenues, each for 3 years = $67,500
Annual operating costs (excl deprec) = $25,000
Tax rate = 35.0%

• A)$3,636
• B)$3,828
• C)$4,019
• D)$4,220
• E)$4,431

---

Definitions:

Tight Culture

Societal or organizational cultures characterized by strong social norms and a low tolerance for deviant behavior.

Conservative Cultural

Pertaining to cultures that prioritize traditional values and are resistant to change or new ideas.

Behavior Norms

Social rules that govern the actions within a group, specifying appropriate and acceptable behaviors for its members.

Independent Self

A concept of self-identity that emphasizes individualism, autonomy, and self-reliance, often contrasting with a collectivist or interdependent view of self.