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Louie’s Leisure Products is considering a project which will require the purchase of $1.5 million of...

Louie’s Leisure Products is considering a project which will require the purchase of $1.5 million of new equipment. Shipping and installation will be an additional $300,000. For tax purposes, the equipment will be depreciated straight-line to a salvage value of $200,000 over the five-year life of the project. Louie’s expects to sell the equipment at the end of five years for $100,000. Annual sales from this project are estimated at $1.2 million with annual operating costs estimated at $500,000. Net working capital is equal to $100,000, and all of the net working capital will be recouped at the end of the project. The firm desires a minimal 14% rate of return on this project. The tax rate is 34%. What is the NPV of the project?

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Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 1 year ago
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