Sheridan Films Is Considering Some New Equipment Whose Data Are

question 6

Multiple Choice

Sheridan Films 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,some new 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? $$\begin{array} { l r } \text { WACC } & 10.0 \% \\\text { Net investment in fixed assets (depreciable basis) } & \$ 70,000 \\\text { Required new working capital } & \$ 10,000 \\\text { Straight-line deprec. rate } & 33.333 \% \\\text { Sales revenues, each year } & \$ 75,000 \\\text { Operating costs (excl. deprec.) , each year } & \$ 30,000 \\\text { Expected pretax salvage value } & \$ 5,000 \\\text { Tax rate } & 35.0 \%\end{array}$$

• A)$20,762
• B)$21,854
• C)$23,005
• D)$24,155
• E)$25,363

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