oject Cash Flows and Risk
Happy Dog Soap is considering an investment that will have the following sales, variable costs, and fixed operating costs:
Year 1
Year 2
Year 3
Year 4
Sales (units)
3,000
3,250
3,300
3,400
Sales price
$17.25 $17.33
$17.45
$18.24
Variable cost per unit
Fixed costs, excluding depreciation
Accelerated depreciation rate
$8.88
$12,500
33%
$8.92
$9.03
$9.06
$13,000 $13,220
45%
15%
$13,250
7%
This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year
life. Happy Dog Soap pays a constant tax rate of 40%, and it has a required rate of
return of 11%.
When using accelerated depreciation, the project's net present value (NPV) is what? 16,446, 20,588, 23,642, or 24,670
When using straight-line depreciation, the project's NPV is
What? 24,485, 26,504, 19,369, or 20,388