Eastern Clothing Company is considering manufacturing a new style of shirt, 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 new 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 Eastern's products and would reduce their pre-tax annual cash flows. What is the project's NPV? WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Straight-line deprec. Per year Sales revenues, each year for 3 years Annual operating costs (excl. deprec.) Tax rate 10.00% $7,500 $90,000 $30,000 $75,000 $25,000 35.00%

Eastern Clothing Company is considering manufacturing a new style of shirt, 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 new 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 Eastern's products and would reduce their pre-tax annual cash flows. What is the project's NPV? WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Straight-line deprec. Per year Sales revenues, each year for 3 years Annual operating costs (excl. deprec.) Tax rate 10.00% $7,500 $90,000 $30,000 $75,000 $25,000 35.00%

Name: Eastern Clothing Company is considering manufacturing a new style of
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Description: Eastern Clothing Company is considering manufacturing a new style of shirt, whose data are shown below. Theequipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zerosalvage value, and no new work

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...

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