Considering producing new type of pasta

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Reference no: EM133306379

Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the company's pre-tax annual cash flows. What is the project's NPV?

WACC 12.0%

Pre-tax cash flow reduction in other products $5,000

Net Investment cost $55,000

Annual capital cost of allowance $21,665

Annual sales revenues $75,000

Annual cash operating costs $25,000

Tax rate 35.0%

Reference no: EM133306379

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