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Companies invest in exparsion projects with the expectation of increasing the earnings of its business...

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Accounting

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Companies invest in exparsion projects with the expectation of increasing the earnings of its business Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and foxed operating costs: Year 1 Year 2 Year 3 Year 4 3,500 4,000 4,200 4,250 $38.50 $39.88 $40.15 $41.55 $22.34 $22.85 $23.67 $23.87 Fixed operating costs except depreciation $37,000 $37,500 $38,120 $39,560 7% Unit sales Sales price Variable cost per unit 33% 45% 15% This project will require an investment of $20,000 in new Determine what the project's net present value (NPV) equipment. The equipment will have no salvage value at would be when using accelerated depreciation. the end of the project's four-year life. Yeatman pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project's net present value (NPV) would be when using accelerated depreciation. O $39,736 O $35,762 O $45,696 O $31,789 Now determine what the project's NPV would be when using straight-line depreciation. $37424 $39,394 $37,424 $49,243 ,303 Using the depreciation method will result in the highest NPV for the pr s45 W. 09

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