DeVault Services recently hired you as a consultant to help with its capital budgeting process. The company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?
Risk-adjusted cost of capital10.0%
Net investment cost (depreciable basis)$65,000
Straight-line deprec. rate33.3333%
Sales revenues, each year$65,500
Operating costs (excl. deprec.), each year$25,000
Tax rate25.0%
A. $34,515
B. $36,331
C. $38,243
D. $40,256
E. $42,375
Answer: E
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