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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. Garida pays a constant tax rate of 25%, and it 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.

Answer :

NVP stands for "net-present value," which is a financial calculation used to determine the current value of a future stream of cash flow.

What does Current value mean?

The current market value of an item, investment, or asset is its current market value. It is the amount of money that could be received if the item or asset were sold right now. The current value can fluctuate over time due to market conditions, supply and demand, and other factors.

What does Investment mean?

The process of putting money into assets or activities with the expectation of receiving a financial return is known as investing. It usually entails purchasing assets such as stocks, bonds, mutual funds, real estate, or other assets in order to generate income or capital gains.

The project’se (NPV) would be under the new tax law  would be:

NPV = -$20,000 + $20,000(1-0.25)(1.11)^-1 + $20,000(1-0.25)(1.11)^-2 + $20,000(1-0.25)(1.11)^-3 + $20,000(1-0.25)(1.11)^-4

= $53,579

Thus according to the correct question option B. $53,579 is the correct answer.

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