Answer:
NPV: 51,334.24
Explanation:
Investment
465,000
100% bonus depreciation tax shield: 465,000 x 23% = 106,950
cash inflow per year:
sales 307,000
variable 36% of sales:(110,520)
fixed cost (55,000)
earning before tax: 141,480
tax expense 23% (32,540.4)
earning after tax 108,939.6
This income will come during 5 years. We will discount at 9%
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 108,940
time 5
rate 0.09
[tex]108939.6 \times \frac{1-(1+0.09)^{-5} }{0.09} = PV\\[/tex]
PV $423,737.0528
Then we calculate the release of the working capital at the end of the project as a lump sum:
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 41,000.00
time 5.00
rate 0.09
[tex]\frac{41000}{(1 + 0.09)^{5} } = PV[/tex]
PV 26,647.19
Now, we calculate the NPV:
investment - working capital + present value of cash inflow + release of WC
-465,000 -41,000 + 106,950 + 423,737.05 + 26,647.19
NPV: 51,334.24