Louie's Leisure Products is considering a project which will require the purchase of $1.35 million in new equipment. The equipment belongs in a 20% CCA class. Louie's expects to sell the equipment at the end of the project for 40% of its original cost. Annual sales from this project are estimated at $1.2 million. Net working capital equal to 20% of sales will be required to support the project. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% return on this project. The tax rate is 34%, and the project life is 5 years.
What is the NPV today of the net working capital changes over the life of this project?
A) $155,000 B) $145,000 CD $135,000 D) $125,000 E) $115,000
| Return at year 5 | 240,000 |
| × PVF | 0.51937 |
| Present value | 124,648.48 |
| Investment | 240,000 |
| Less: present value | (124,648.48) |
| NPV | 115,351.52 |
Answer is $115,000
please rate.
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