Silver Sun Food is evaluating the medical clinic project, a 2-year project that would involve buying...

Silver Sun Food is evaluating the medical clinic project, a 2-year project that would involve buying equipment for 38,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 15,000 dollars in year 2. Relevant annual revenues are expected to be 100,000 dollars in year 1 and 100,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 10,000 dollars in year 1 and 10,000 dollars in year 2. Finally, the firm has no fixed costs in year 1 and one fixed cost in year 2 of the project. Yesterday, Silver Sun Food signed a deal with Blue Eagle Consulting to develop an advertising campaign. The terms of the deal require Silver Sun Food to pay Blue Eagle Consulting either 84,000 dollars in 2 years from today if the medical clinic project is pursued or 57,000 dollars in 2 years from today if the medical clinic project is not pursued. The tax rate is 40 percent and the cost of capital for the medical clinic project is 13.99 percent. What is the net present value of the medical clinic project?

Solutions

Expert Solution

Answer:- NPV = $31,585.80

Explanation:-

Following is the excel sheet showing the calculation of NPV of the project:-

Following is the Formula sheet of above excel worksheet for easy understanding of the calculations:-

jeff jeffy answered 1 year ago

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