TexMex Food Company Is Considering a New Salsa Whose Data

question 22

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 change in net operating 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. ) Do not round the intermediate calculations and round the final answer to the nearest whole number.
? $$\begin{array} { l r } \text { WACC } & 10.0 \% \\\text { Pre-tax cash flow reduction for other products (cannibalization) } & - \$ 5,000 \\\text { Investment cost (depreciable basis) } & \$ 80,000 \\\text { Straight-line depr. rate } & 33.333 \% \\\text { Annual sales revenues } & \$ 66,000 \\\text { Annual operating costs (excl. depr.) } & - \$ 25,000 \\\text { Tax rate } & 35.0 \%\end{array}$$
?

• A) 01,529
• B) 01,094
• C) 01,403
• D) 01,347
• E) 01,684

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Definitions:

Ordinal Data

Data that can be categorized and ranked in a specific order, but the intervals between the ranks are not necessarily equal.

Interval Data

A type of numerical data in which the intervals between numbers on the scale are interpretable and equal, allowing for meaningful comparison and arithmetic operations.

Nominal Data

Data classified into categories that cannot be ordered in a meaningful way.

Interval Data

A type of data that is measured along a scale, where the difference between values is meaningful, but there is no true zero point.