Question

In: Finance

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 2 years ago
Next > < Previous

Related Solutions

Silver Sun Packaging is evaluating the vending machine project, a 2-year project that would involve buying...
Silver Sun Packaging is evaluating the vending machine project, a 2-year project that would involve buying equipment for 24,000 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 13,000 dollars in year 2. Relevant annual revenues are expected to be 61,000 dollars in year 1 and 61,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 11,000...
Violet Sky Entertainment is evaluating the trampoline park project, a 2-year project that would involve buying...
Violet Sky Entertainment is evaluating the trampoline park project, a 2-year project that would involve buying equipment for 54,000 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 5,000 dollars in year 2. Relevant annual revenues are expected to be 83,000 dollars in year 1 and 83,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 10,000...
Red Royal Banking is evaluating the yoga studio project, a 2-year project that would involve buying...
Red Royal Banking is evaluating the yoga studio project, a 2-year project that would involve buying equipment for 76,000 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 19,000 dollars in year 2. Relevant annual revenues are expected to be 84,000 dollars in year 1 and 84,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 16,000...
Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 420,000 dollars that...
Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 420,000 dollars that would be depreciated to 20,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 26,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 420,000 dollars. The firm would receive 420,000 dollars from the bank today and would pay the bank $0 in 1 year and 477,246 dollars in 2...
Red Royal Industrial is evaluating the medical clinic project. During year 1, the medical clinic project...
Red Royal Industrial is evaluating the medical clinic project. During year 1, the medical clinic project is expected to have relevant revenue of 647,200 dollars, relevant variable costs of 207,600 dollars, and relevant depreciation of 63,700 dollars. In addition, Red Royal Industrial would have one source of fixed costs associated with the medical clinic project. Red Royal Industrial just signed a deal with Orange Valley Consulting to develop an advertising campaign for use in the project. The terms of the...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 340,000 dollars today. The equipment would be depreciated straight-line to 20,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 34,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 212,000 dollars and relevant costs are expected to be 111,000 dollars. The tax rate is 50 percent...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 450,000 dollars today. The equipment would be depreciated straight-line to 50,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 63,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 369,000 dollars and relevant costs are expected to be 142,000 dollars. The tax rate is 50 percent...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 400,000 dollars today. The equipment would be depreciated straight-line to 30,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 42,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 246,000 dollars and relevant costs are expected to be 127,000 dollars. The tax rate is 50 percent...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 430,000 dollars today. The equipment would be depreciated straight-line to 40,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 52,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 259,000 dollars and relevant costs are expected to be 95,000 dollars. The tax rate is 50 percent...
Silver Sun Media is considering a project that would last for 2 years. The project would...
Silver Sun Media is considering a project that would last for 2 years. The project would involve an initial investment of 104,000 dollars for new equipment that would be sold for an expected price of 84,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 24,000 dollars over 4 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 85,000 dollars per year and...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT