Question

Duluth Snow Removal Co. is considering purchasing an $825,000 snow melting machine in order to get a contract with the city. They have estimated that the machine would only last four years at which time it would be scrapped for $60,000. It will be depreciated using MACRS and it falls into the 5-year schedule. The 4-year project will generate $480,000 in annual revenue and $95,000 in annual costs. The project will require an investment of $20,000 in net working capital. Duluth Snow is in the 20 percent tax bracket and requires a 10 percent return on projects. Copyright © by Jarrod Johnston All Rights Reserved. What is the project NPV? Round your answer to the nearest whole number and no commas. Answer: Next page age

Answer 1

															8,25,000
Year	Cash Outflow	Working Capital	Annual Cash Inflow	Depreciation	CFBT	Tax @ 20%	Salvage Value	CFAT	PVF @ 10%	PV			Year	Rate	Depreciation
N	A	B	C	D	E=C-D	F=E*20%	G	H=E-F+G+D+A+B	I=1/1.1^N	J=H*I			Year 1	20.00%	1,65,000
-	-8,25,000	-20,000	-	-	-	-	-	-8,45,000	1.000	-8,45,000			Year 2	32.00%	2,64,000
1	-	-	3,85,000	1,65,000	2,20,000	44,000	-	3,41,000	0.909	3,10,000			Year 3	19.20%	1,58,400
2	-	-	3,85,000	2,64,000	1,21,000	24,200	-	3,60,800	0.826	2,98,182			Year 4	11.52%	95,040
3	-	-	3,85,000	1,58,400	2,26,600	45,320	-	3,39,680	0.751	2,55,207			Total Depreciation		6,82,440
4	-	20,000	3,85,000	95,040	2,89,960	57,992	76,512	4,23,520	0.683	2,89,270
									NPV	3,07,658
													Book Value after 4 year		1,42,560	(825000-682,440)
													Salvage Value		60,000
													Tax Loss		82,560	(142,560-60,000)
													Tax Savings @ 20%		16,512	(82,560*20%)
													Total Cash Inflow		76,512	(60000+16,512)

NPV = 307,658

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