Question

+ V - x 5 > NYMT - $2.02 Robinhood W Quiz: Exam Il part2 x after tax salvage calculator - O & https://uc.instructure.com/courses/1287050/quizzes/3135189/take E Question 18 0.5 pts A new line of sneakers is expected to sell 8000 pairs a year at $102 each. The new line is expected to have a 4 year life. It requires labor costs of $30.50 and material costs of $24.72 per pair. Fixed costs per year is $74,040. New equipment for production is needed, and requires an investment of $950,000. This equipment will be depreciated straight-line to zero over the life of the project, after which time it will have a market value of $380,000. The project requires an initial investment in net working capital of $43,000. The tax rate is 21 percent and the required return for the project is 15%. e. Find the NPV (round to the nearest $100, example, 1188>>1200): $ o B é Type here to search - 9 e . 1058 AM E 3/27/20205

Answer 1

0 11 12 13 14 Calculation of NPV of the Project Particulars Initial Investment Investment in Equipment Investment in Working Capital Net Investment (A) -950000 -43000 -993000 816000 816000 816000 816000 244000 244000 244000 244000 197760 74040 197760 74040 197760 74040 197760 74040 Operating Cash Flows Annual Sales (B) (8000 pairs $102) Less: Labour Costs (C) (8000 pairs $30.50) Less: Material Costs (D) (8000 pairs $24.72) Less: Fixed Costs (E) Less: Depreciation (F) ($950000 / 4 years) Profit Before Tax (G = B-C-D-E-F) Less: Tax @21% (H = G.21%) Profit After Tax (I = G-H) Add back Depreciation () = F) Net Operating Cash Flows (K = [+]) Terminal Value salvage value (L) Less; Tax @21% (M = L*21%) After Tax Salvage value (N = L-M) Working Capital Recovered (O) Net Terminal Value (P = N+O) Total Cash Flows (Q = A+K+P) Discount Factor (R) 1/(1+15%)^n n=0,1,2,3,4 Discounted Cash Flows (S = QR) Net Present Value 237500237500 237500237500 62700627006270062700 13167 13167 13167 13167 49533 49533 49533 49533 237500237500237500237500 287033 287033287033 287033 380000 79800 300200 43000 343200 -993000 287033 287033 287033 630233 1 -993000 22698.7 0.86957 0.75614 249594217038 0.65752 0.57175 188729 360338

Therefore, NPV of the project is $22,700