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Thomson Media Is Considering Some New Equipment Whose Data Are

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Thomson Media is considering some new equipment whose data are shown below.The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years,but it would have a positive pre-tax salvage value at the end of Year 3,when the project would be closed down.Also,additional net operating working capital would be required,but it would be recovered at the end of the project's life.Revenues and other operating costs are expected to be constant over the project's 3-year life.What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.  WACC 10.0% Net investment in fixed assets (depreciable basis)  $70,000 Required net operating working capital $10,000 Straight-line depreciation rate 33.333% Annual sales revenues $70,000 Annual operating costs (excl. depreciation)  $30,000 Expected pre-tax salvage value $5,000 Tax rate 35.0%\begin{array} { l r } \text { WACC } & 10.0 \% \\\text { Net investment in fixed assets (depreciable basis) } & \$ 70,000 \\\text { Required net operating working capital } & \$ 10,000 \\\text { Straight-line depreciation rate } & 33.333 \% \\\text { Annual sales revenues } & \$ 70,000 \\\text { Annual operating costs (excl. depreciation) } & \$ 30,000 \\\text { Expected pre-tax salvage value } & \$ 5,000 \\\text { Tax rate } & 35.0 \%\end{array}
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Definitions:

Delta

A measure in options trading that indicates how the price of an option is expected to change relative to a one-unit change in the price of the underlying asset.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a fixed period of time.

Binomial OPM

A mathematical model used to price options, considering multiple potential outcomes and the time value of money.

Exercise Price

The predetermined price at which an option contract can be executed, determining the cost to buy (call) or sell (put) the underlying asset.

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