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Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect...

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $520,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $102,000 at the end of the project in 5 years. Sales would be $351,000 per year, with annual fixed costs of $66,000 and variable costs equal to 38 percent of sales. The project would require an investment of $63,000 in NWC that would be returned at the end of the project. The tax rate is 24 percent and the required return is 10 percent.

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

********NOTE: THE ANSWER IS NOT -10,650.35****************

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Answer #1

NPV= $ 54523.32

Tax shield on depreciation = Tax*Depreciation

Year Equipment Tax on depreciation WC Revenue Net cash flows
0 -520000 -63000 -583000
1 124800 115231.2 240031.2
2 115231.2 115231.2
3 115231.2 115231.2
4 115231.2 115231.2
5 77520 63000 115231.2 255751.2
NPV 54523.31815

Equipment recovery = Sales proceeds*(1-Tax)

Revenue is computed as (Sales- Fixed cost- Variable cost)*(1-Tax)


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