Stanley Company Has Obtained the Following Information About a Proposed

question 17

Essay

Stanley Company has obtained the following information about a proposed project:
Annual cash operating savings (excluding depreciation)
$\begin{array}{ll}\text { for } 5 \text { years (end of year) } & \$ 50,000 \\\text { Depreciation expense per year for tax purposes } & \$ 33,000 \\\text { Estimated salvage value in } 5 \text { years } & \$ 10,000 \\\text { Cost of equipment } & \$ 175,000 \\\text { Required rate of return } & 10 \% \\\text { Income taxrate } & 40 \% \\\text { Estimated useful life (in years) } & 5\\\text { Depreciation method for tax purposes }&\text { Straight-line }\end{array}$
Present value of ordinary annuity of one
$\begin{array} { l } \text { at \( 10 \% \) for 5 periods}& 3.79.8\\ \text {Present value of one at \( 10 \% \) for 5 periods }&0.6209 \\\end{array}$

Required:
A) What is the NPV of the project?
B) Should the project be undertaken?

• A) What is the NPV of the project?
• B) Should the project be undertaken?

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Definitions:

Spatial

Relating to, occupying, or having the character of space.

Conventional Pattern

a traditional or commonly accepted way of organizing or doing something.

Cause and Effect

The relationship between events where one or more are the result of the other(s), illustrating how interactions occur.

Organizational Pattern

The structured arrangement of ideas in a written or spoken form to effectively convey a message to the audience.