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American Company is considering a new product whose data are shown below. The equipment to be...

American Company is considering a new product 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 change in net operating 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 American products and would reduce their pre-tax annual cash flows. What is the project's NPV? IRR? Please include excel cells and formulas.

WACC

10.0%

Pre-tax cash flow reduction for other products (cannibalization)

−$5,000

Investment cost (depreciable basis)

$80,000

       Annual sales revenues

$67,500

Annual operating costs (excl. depreciation)

−$25,000

Tax rate

35.0%
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