TexMex Products Is Considering a New Salsa Whose Data Are

question 33

Multiple Choice

TexMex Products is considering a new salsa whose data are shown below.The equipment has a constant capital cost allowance over its 3-year life with a zero salvage value.No new working capital would be required.Revenues and cash 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 the company's pre-tax annual cash flows.What is the project's NPV? (Hint: Cash flows are constant in Years 1 to 3.Actual CCA varies.The proposed CCA is for computational convenience.) ​ $\begin{array}{lr}\text { WACC } & 10.0 \% \\\text { Pre-tax cash flow reduction in other products } & \$ 5,000 \\\text { (cannibalization) } & \\\text { Investment cost } & \$ 65,000 \\\text { Annual capital cost of allowance } & \$ 21,665 \\\text { Annual sales revenues } & \$ 75,000 \\\text { Annual cash operating costs } & \$ 25,000 \\\text { Tax rate } & 35.0 \%\end{array}$

• A)$25,269
• B)$26,599
• C)$27,929
• D)$29,325

---

Definitions:

Hostile Questions

Questions that are asked in an aggressive manner, often intended to challenge or intimidate the respondent.

Question-And-Answer Session

A period during or after a presentation, lecture, or meeting, where participants can ask questions to gain further information or clarification.

Problem Statement

A succinct account of a challenge to be tackled or a state that needs betterment.

Transition

The process or a period of changing from one state or condition to another.