23. Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing...
23. Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $708,000 that would be depreciated on a straight-line basis to a zero balance over the four-year life of the project. The equipment can be sold for $220,000 after the four years. The project requires $46,000 initially for net working capital, all of which will be recovered at the end of the project. The projected operating cash flow is $211,500 a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 34 percent?
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Homework Answers
| NPV | 189158.25 |
Workings
| Year | NWC |
Cost of new machine |
Tax
shield- depreciation |
Sale of new machine |
OCF | Net CF |
| 0 | -46000 | -708000 | -708000 | |||
| 1 | 60180 | 211500 | 271680 | |||
| 2 | 60180 | 211500 | 271680 | |||
| 3 | 60180 | 211500 | 271680 | |||
| 4 | 46000 | 60180 | 145200 | 211500 | 416880 | |
| NPV | 189158.25 |
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