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Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $159,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $159,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $96,000, variable costs of $27,350, and fixed costs of $11,950. The project will also require net working capital of $2,550 that will be returned at the end of the project. The company has a tax rate of 35 percent and the project's required return is 9 percent. What is the net present value of this project? Multiple Choice $6,779 $7,523 $4,335 $4,729 $5,754

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Answer #1
Year 0 Year 1 2 3 4
Investment -159000
Working capital -2550
Sales 96000 96000 96000 96000
Variable costs 27350 27350 27350 27350
Fixed costs 11950 11950 11950 11950
Depreciation 52994.7 70675.5 23547.9 11781.9
Income before tax 3705.3 -13975.5 33152.1 44918.1
Less: Tax 1296.855 -4891.425 11603.235 15721.335
Net Income 2408.445 -9084.075 21548.865 29196.765
Add: Depreciation 52994.7 70675.5 23547.9 11781.9
Operating Cash flow 55403.145 61591.425 45096.765 40978.665
Recovery of working capital 2550
Cash flow -161550 55403.145 61591.425 45096.765 43528.665
Present value factor 1 0.917431193 0.841679993 0.77218348 0.708425211
Present value -161550 50828.57339 51840.27018 34822.97694 30836.80369
NPV 6778.624201
Hence, the answer is $6,779
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