Asked by Jakayla Richburg on Jun 03, 2024
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Majestic Theaters is considering investing in some new projection equipment whose data are shown below.The required equipment has a 7-year project life falling into a CCA class of 30%,but it would have a positive pre-tax salvage value at the end of Year 7.Also,some new working capital would be required,but it would be recovered at the end of the project's life.Revenues and cash operating costs are expected to be constant over the project's 7-year life.What is the project's NPV? WACC 12.0% Net capital investment in fixed assets $950,000 Required new working capital $30,000 Sales revenues, each year $580,000 Cash operating costs, each year $330,000 Expected pretax salvage value $50,000 Tax rate 5.0%\begin{array}{ll}\text { WACC } & 12.0 \% \\\text { Net capital investment in fixed assets } & \$ 950,000 \\\text { Required new working capital } & \$ 30,000 \\\text { Sales revenues, each year } & \$ 580,000 \\\text { Cash operating costs, each year } & \$ 330,000 \\\text { Expected pretax salvage value } & \$ 50,000 \\\text { Tax rate } & 5.0 \%\end{array} WACC Net capital investment in fixed assets Required new working capital Sales revenues, each year Cash operating costs, each year Expected pretax salvage value Tax rate 12.0%$950,000$30,000$580,000$330,000$50,0005.0%
A) $13,965
B) $15,226
C) $16,910
D) $17,882
Net Capital Investment
The total capital investment in a company minus the depreciation on its previous capital investments.
Pre-Tax Salvage Value
The estimated value of an asset at the end of its useful life, before subtracting taxes associated with its disposal.
Working Capital
Working Capital is the difference between a company's current assets and current liabilities, indicating the liquidity and operational efficiency of the business.
- Learn the basis and numerical procedures for calculating net present value (NPV) pivotal to investment decisions in projects.
- Evaluate the repercussions of taxes on the financial performance and worth of projects.
- Analyze the influence of risks associated with the project and shifts in operational procedures on the project's worth.
Verified Answer
Learning Objectives
- Learn the basis and numerical procedures for calculating net present value (NPV) pivotal to investment decisions in projects.
- Evaluate the repercussions of taxes on the financial performance and worth of projects.
- Analyze the influence of risks associated with the project and shifts in operational procedures on the project's worth.
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