Voice-Soft Inc. is trying to determine whether to open a new product line, Voice-Write, a speech-to-text product, which is expected to be competitive for four years. The cost of the new capital equipment including shipping and installation is $3100. The equipment will last for 4 years. They use simple straight line depreciation and the salvage value is $400. For 2016 to 2019, sales are expected to be $4000, 4000, 4200, and 4200; and operating expenses, $2800, $2800, $2700, $2700. The company is expecting to lose operating income of $200 per year due to Voice-Write cannibalizing its current product, Voice-Speak. Regardless of your answer to part I above (WACC calculation) assume Voice-Soft has a tax rate of 40% and a weighted average cost of capital (WACC) of 12
Complete the Project cash flow statement below and then answer questions.
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2015
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2016
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2017
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2018
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2019
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Sales
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Operating Expenses
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Opportunity Costs
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Depreciation
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Operating Income (EBIT)
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Taxes
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Operating Income after taxes
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Depreciation
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Cash Flow
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Salvage Value
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Salvage Tax
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Net Salvage Value
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Initial capital Investment
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Project Cash Flow
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Determine the Net Present Value, IRR and should Voice soft make an investment? why?