Problem 1: 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...

Extracted text: Problem 1: 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? Briefly discuss the results. 10.0% -$5,000 $80,000 WACC Pre-tax cash flow reduction for other products (cannibalization) Investment cost (depreciable basis) Annual sales revenues Annual operating costs (excl. depreciation) Tax rate $67,500 -$25,000 35.0%