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25. Platinum Water Technology is evaluating the race track project, a 2-year project that would involve...

25.

Platinum Water Technology is evaluating the race track project, a 2-year project that would involve buying equipment for 38,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 24,000 dollars in year 2. Relevant annual revenues are expected to be 58,000 dollars in year 1 and 58,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 17,000 dollars in year 1 and 17,000 dollars in year 2. Finally, the firm has no fixed costs in year 1 and one fixed cost in year 2 of the project. Yesterday, Platinum Water Technology signed a deal with Indigo River Consulting to develop an advertising campaign. The terms of the deal require Platinum Water Technology to pay Indigo River Consulting either 70,000 dollars in 2 years from today if the race track project is pursued or 41,000 dollars in 2 years from today if the race track project is not pursued. The tax rate is 40 percent and the cost of capital for the race track project is 9.06 percent. What is the net present value of the race track project?

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ekkarill92 answered 2 years ago
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