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Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $465,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $69,000 at the end of the project in 5 years. Sales would be $307,000 per year, with annual fixed costs of $55,000 and variable costs equal to 36 percent of sales. The project would require an investment of $41,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 9 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Respuesta :

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