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Question 1 10 points Save Answer We believe we can sell 450,000 home security devices per year at $93 per piece. They cost $74 to manufacture (variable cost). Fixed production costs run $215,000 per year. The necessary equipment costs $785,000 to buy and would be depreciated at a 25% CCA rate. The equipment would have a zero salvage value after the five-year life of the project. We need to invest $140,000 in net working capital up front; no additional net working capital investment is necessary. The discount rate is 19%, and the tax rate is 35%. What is the NPV of the project? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

Answer 1

F - A B D E G H 1 Years 2 Investment S (785,000.00) 3 Net Working Capital $ (140,000.00) $ 140,000.00 4 Sales 450000*93 $ 41,850,000.00 $ 41,850,000.00 $ 41,850,000.00 $ 41,850,000.00 $ 41,850,000.00 5 Variable Cost $ 33,300,000.00 $ 33,300,000.00 $ 33,300,000.00 $ 33,300,000.00 $ 33,300,000.00 6 Fixed cost $ 215,000.00 $ 215,000.00 $ 215,000.00 $ 215,000.00 $ 215,000.00 7 Earnings before interest, taxes, depreciation, and amortization $ 8,335,000.00 $ 8,335,000.00 $ 8,335,000.00 $ 8,335,000.00 $ 8,335,000.00 8 Depreciation $ 196,250.00 S 147,187.50 $ 110,390.63 $ 82,792.97$ 62,094.73 9 EBIT $ 8,138,750.00 $ 8,187,812.50 $ 8,224,609.38 $ 8,252,207.03 $ 8,272,905.27 10 Tax expenses $ 2,848,562.50 $ 2,865,734.38 $ 2,878,613.28 $ 2,888,272.46 $ 2,895,516.85 11 Net Income (PAT) $ 5,290,187.50 $ 5,322,078.13 $ 5,345,996.09 $ 5,363,934.57 $ 5,377,388.43 12 Tax Saving on Equipment Loss 186284.18*0.35 $ 65,199.46 13 Cash Flow PAT + DEP $ (925,000.00) $ 5,486,437.50 $ 5,469,265.63 $ 5,456,386.72 $ 5,446,727.54 $ 5,644,682.62 14 PV Factor @ 19% 0.840336134 0.706164819 0.593415814 0.498668751 0.419049371 15 Present Value of Cash Flow $ (925,000.00) $ 4,610,451.68 $ 3,862,202.97 $ 3,237,906.17 $ 2,716,112.82 $ 2,365,400.70 16 Net Present Value $ 15,867,074.34 17 Calculation of Dep. 18 Opening Book Value $ 785,000.00 $ 588,750.00 $ 441,562.50 $ 331,171.88 $ 248,378.91 19 Depreciation $ 196,250.00 $ 147,187.50 $ 110,390.63 $ 82,792.97 $ 62,094.73 20 Closing Book Value $ 588,750.00 $ 441,562.50 $ 331,171.88 $ 248,378.91 $ 186,284.18 21 1

A B с D E F G H 1 2 3 4 15 0 -785000 - 140000 450000*93 1 Years 2 Investment 3 Net Working Capital 4 Sales 5 Variable Cost 6 Fixed cost 7 Earnings before interest, taxes, depreciation, and amortization 8 Depreciation 9 EBIT 10 Tax expenses 11 Net Income (PAT) 12 Tax Saving on Equipment Loss 13 Cash Flow 14 PV Factor @ 19% 15 Present Value of Cash Flow 16 Net Present Value 17 Calculation of Dep. 18 Opening Book Value 19 Depreciation 20 Closing Book Value 21 140000 -450000*93-450000*93-450000*93 -450000*93 -450000*93 -450000*74 -450000*74 -450000*74 -450000*74 -450000*74 215000 215000 215000 215000 215000 =D4-D5-D6 =E4-E5-E6 |=F4-F5-F6 =G4-G5-G6 =H4-H5-H6 196250 147187.5 110390.625 82792.96875 62094.7265625 =D7-08 =E7-E8 =F7-F8 =G7-G8 =H7-H8 =D9*0.35 =E9*0.35 =F9*0.35 =G9*0.35 =H9*0.35 =D9-D10 =E9-E10 =F9-F10 =G9-G10 =H9-H10 =H20*0.35 =D8+D11 =E8+E11 =F8+F11 =G8+G11 =H8+H11+H12+H3 =1/1.19^D1 =1/1.19^E1 =1/1.19^F1 =1/1.194G1 =1/1.19^H1 =D14*D13 =E14*E13 =F14F13 =G14*G13 =H14*H13 186284.18*0.35 PAT + DEP =C2+C3 1 =C14*C13 =SUM(C15:H15) 785000 -D18*0.25 =D18-D19 =D20 =E18*0.25 =E18-E19 =E20 |=F18*0.25 =F18-F19 =F20 =G18*0.25 =G18-619 =G20 =H18*0.25 =H18-H19
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