TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number. ? WACC10.0% Pre-tax cash flow reduction for other products (cannibalization)-$5,000 Investment cost (depreciable basis)$80,000 Straight-line
depr. rate33.333% Annual sales revenues$66,000 Annual operating costs (excl. depr.)-$25,000 Tax rate35.0% ?
A. 01,529
B. 01,094
C. 01,403
D. 01,347
E. 01,684
Answer: C
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