Question

Bourque Enterprises is considering a new project. The project will generate sales of $1.3 million, $1.8 million, $1.7 million, and $1.2 million over the next four years, respectively. The fixed assets required for the project will cost $1.7 million and will be eligible for 100 percent bonus depreciation. At the end of the project, the fixed assets can be sold for $185,000. Variable costs will be 20 percent of sales and fixed costs will be $440,000 per year. The project will require NWC equal to 15 percent of sales that must be accumulated in the year prior to sales. The required return on the project is 11 and the tax rate is 21 percent What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 410000

Answer 1

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e w ? v L 1 ENG 01:08 10-03-2020 23 HP1 HH HI HJ HK HL HM HN HO HP HQ HR HA BOURQUE 100% BONUS DEPRECIATION [1700000*(1-0.21)] (AFTER TAX COST OF EQUIPMENT] YEAR -1343000 -195000 -30000 1300000 260000 440000 -30000 1500000 300000 440000 75000 1700000 340000 440000 LESS LESS LESS 1200000 240000 440000 LESS COST OF ASSET WORKING CAPITAL SALES COSTS : 20% OF SALES FIXED COSTS DEPRECIATION INCOME BEFORE TAX TAX NET INCOME DEPRECIATION OPERATING CASH FLOW RECOVERY OF WORKING CAPITAL AFTER TAX SALVAGE VALUE OF ASSET NET CASH FLOW PV FACTOR AT 11% PV OF CFAT NPV 600000 126000 474000 760000 159600 600400 920000 193200 726800 0 726800 520000 109200 410800 ADD -1538000 474000 600400 ADD ADD -1538000 444000 0.9009 400000.00 570400 0.8116 462949.44 8 01800 0.7312 586269.25 410800 180000 146150 (185000*(1-0.21)] 736950 0.6587 485451.79 396670.48 NPV - 1538000 396670.48 RATIO PI PBP ARR invest, EAA Mi-np-ir REPLACEMENTS IRRnpvbeta HPR GMAM EAC MACRS RELEVANT NPV BETA LEVERED REPLACEMENT BONC ... ►