Question

A company is considering a project to enter a new line of business. The new business will require the company to purchase a new machine that will cost $930,000. These costs will be depreciated on a straight-line basis to zero over three years. At the end of three years, the company will get out of the business and will sell the machine at a market value of $70,000. Working capital of $50,000 will be required from the outset, which will be fully recovered at the end of year 3. The project is expected to generate $1.6 million in sales each year. The operating costs, excluding depreciation, are expected to be $1.15 million per year. The company tax rate is 30%, and the project's required rate of return is 12%. What is the net present value of the project?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

just written in excel. no excel function is used.

Depreciation = 930000/3 = 310000

1513 a dx E ENG 08 01 2020 х DN33 DM DN DO DP DQ DR DS DT DU DV DW DX 33 34 35 36 37 38 39 40 YEAR -->> 41 3 42 COST OF ASSET -930000 WORKING CAPITAL 43 -50000 44 SALES 1600000 1600000 1600000 COSTS 1150000 1150000 45 1150000 46 DEPRECIATION 310000 310000 310000 47 140000 140000 140000 INCOME BEFORE TAX 30% 48 TAX 42000 42000 42000 NET INCOME 49 98000 98000 98000 310000 310000 50 DEPRECIATION 310000 51 OPERATING CASH FLOW -980000 408000 408000 408000 52 RECOVERY OF WORKING CAPITAL 50000 49000 (70000*(1-0.30)) AFTER TAX SALVAGE VALUE OF ASSET 53 NET CASH FLOW -980000 408000 507000 54 408000 PV FACTOR AT 12% 0.8929 0.7972 55 0.7118 PV OF CFAT 56 -980000 364285.71 325255.10 360872.59 70413.40 57 NPV 58 EAC MACRS | NPV | BETA LEVERED REPLACEMENT | BOND OPTION TO WAIT| STEIN indillEPS EBIT MI-rip-ir . invest, EAA LEASE SLM REPLACEMENT S | HPR GMAM RELEVANT

1513 a dx E ENG 08 01 2020 х fr DNB3 DM DN DO DP DQ DR DS DT DU DV DW DX 58 59 YEAR O NET CASH FLOW -980000 60 61 NET OPERATING CASH FLOW 62 YEAR 1 408000 63 YEAR 2 408000 64 YEAR 3 507000 65 66 NPV 70413.40 answer 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 EAC MACRS | NPV | RELEVANT | BETA LEVERED REPLACEMENT | BOND MI-пр-і STEIN indillEPS EDIT 1 . invest, EAA REPLACEMENT S HPR GMAM OPTION TO WAIT| LEASE SLM