10. (TCO H) Sub-Prime Loan Company is thinking of opening a new office, and the key data - 88195

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10. (TCO H) Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes, if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project’s three-year life, after which it would be worth nothing, and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project’s three-year life. What is the project’s NPV? (Hint: Cash flows are constant in years 1-3.) WACC Opportunity cost Net equipment cost (depreciable basis) Straight-line deprec. rate for equipment Sales revenues, each year Operating costs (excl. deprec.), each year Tax rate 10.0% $100,000 $65,000 33.333% $123,000 $25,000 35% a. $10,521 b. $11,075 c. $11,658 d. $12,271 e. $12,885
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