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 $425,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $45,000 at the end of the project in five years. Sales would be $275,000 per year, with annual fixed costs of $47,000 and variable costs equal to 35 percent of sales. The project would require an investment of $25,000 in NWC that would be returned at the end of the project. The tax rate is 22 percent, and the required return is 9 percent. What is the project’s NPV?
PLEASE SHOW EXCEL FUNCTIONS
Operating cash flow (OCF) each year = income after tax + depreciation
In year 5, the entire NWC is recovered.
profit on sale of equipment at end of year 5 = sale price - book value
book value = original cost - accumulated depreciation
accumulated depreciation = zero, as the equipment is fully depreciated in the 1st year itself.
after-tax salvage value = salvage value - tax on profit on sale of equipment
NPV is calculated using NPV function in Excel
NPV is $99,561
Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...
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 $425,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $45,000 at the end of the project in five years. Sales would be $275,000 per year, with annual fixed costs of $47,000 and variable costs equal to 35 percent of sales. The project would require an investment of $25,000...
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 $525,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $105,000 at the end of the project in 5 years. Sales would be $355,000 per year, with annual fixed costs of $67,000 and variable costs equal to 37 percent of sales. The project would require an investment of $65,000...
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 $440,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $54,000 at the end of the project in 5 years. Sales would be $287,000 per year, with annual fixed costs of $50,000 and variable costs equal to 37 percent of sales. The project would require an investment of $31,000...
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 $520,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $102,000 at the end of the project in 5 years. Sales would be $351,000 per year, with annual fixed costs of $66,000 and variable costs equal to 38 percent of sales. The project would require an investment of $63,000...
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Graziano Corporation (GC) is considering a project to purchase new equipment. The equipment would be depreciated by the straight-line method over its 3-year life and would have a zero-salvage value. The project requires an investment of $6,000 today on net working capital. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other company’s products and would reduce its pre-tax annual cash flows of $5,000 per year. The investment...
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