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a.
Cost of the equipment 9,000,000
Operating working capital 3,000,000
Outlay 12,000,000
b.
market research is sunk hence not accounted
c.
The sale proceeds is an opportnity cost and hence to be charged as a cost against the project
12--2
a.
Tax 40%
Sales revenue 10,000,000
Less;Cost 7,000,000
Less Depreciation 2,000,000
b. lara:
The cannibalization of
existing sales needs to be
considered in this analysis
on an after-tax basis,
the after-tax effect would because the cannibalized
reduce the project’s cash sales represent sales
flow by $1,000,000(1 – T) = revenue the firm would
$1,000,000(0.6) = $600,000. realize without the new
Thus, the project’s cash flow project but would lose if
would now be $2,000,000 the new project is
rather than $2,600,000 accepted
C. The project cash flow will improve by $1,00,000 if the tax rate drops to 30%
12--3
BookValue 4,000,000
Here the company gets 50,00,000 by selling but has to pay 4,00,000 as tax thus the cash flow net of tax is 4600000
a.
Depreciation
Year1 33% 39,765
year2 45% 54,225
year 3 15% 18,075
year 4 7% 8,435
c.
Year 1 2 3
NPV 10,840
120,500
112,065
8,435
65000
56,565
19,798