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No new working capital would be required

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1. 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 3-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 3-year life. What is the project's NPV? 

WACC .......................................................10.0%
Opportunity cost ....................................$100,000
Net equipment cost (depreciable basis) ...$65,000
Straight-line depr. Rate for equipment ....33.333%
Sales revenues, each year .......................$141,000
Operating costs (excl. depr.), each year ...$25,000
Tax rate .........................................................35%

Reference no: EM13992779

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