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Consider the case of Fox Co. Fax Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs! Year 1 Year 2 Year 3 Year 4 Unit Sales 3.000 3,250 3.300 3,400 Sales price $17.25 $17.33 $17.45 $16.24 Variable cost per unit $8.38 $5.92 $9.03 $9.06 Fixed operating costs $12.500 $13,000 $13,220 $13,250 This project will require an investment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project's four-year life. Fox Days a constant tax rate of 25%, and has a weighted average cost of capital (WACC) of 11% Determine what the project's net present value (NPV) would be under the new tax law. Determine what the project's net present value (NPV) would be under the new tax law. $22,930 $15.286 $21,974 $19,108 Now determine what the projects NPV would be when using straight-line depreciation Using the depreciation method will result in the highest NPV for the project No other firm would take on this project is fox turns it down. How much should fox reduce the NPV of this project if it discovered that this project would reduce one of its division's net after-tax cash nows by $300 for each year of the four-year project? O $1,020 O 5931 5559 5791 The project will require an initial investment of $20,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $9,000, after taxes, if the project is rejected. What should Fox do to take this information into account? Increase the NPV of the project by 59,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the amount of the initial investment by $9.000

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