Question

Outdoor Sports is considering adding a putt putt golf course to its facility. The course would cost $187,000, would be depreciated on a straight-line basis over its 5-year life, and would have a zero salvage value. The sales would be $91,500 a year, with variable costs of $28,400 and fixed costs of $13,000. In addition, the firm anticipates an additional $23,300 in revenue from its existing facilities if the putt putt course is added. The project will require $3600 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 10 percent and a tax rate of 35 percent?

A) $15,296

B) $84,648

C) $20,367

D) $40,692

E) $43,480

Answer 1

Annual Cash flows
Sales Revenue		91500
Additional revenue		23300
Total Revenue		114800
Expenses:
Variable costs	28400
Fixed costs	13000
Depreciation	37400
Total Expenses		78800
EBIT		36000
Taxes @ 35%		12600
Net Income		23400
Depreciation		37400
Annual Cash flows		60800
Year		Cash flows	Discount factor at 10%	Discounted cash flows
Year 0	Course cost	-187000	1.000000	-187000
Year 0	Working capital	-3600	1.000000	-3600
Year 1 to 5	Annual cash flows	60800	3.790787	230480
Year 5	Working capital recovered	3600		3600
NPV				43480