Question

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $187,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $124,000, variable costs of $33,100, and fixed costs of $12,650. The project will also require net working capital of $3,250 that will be returned at the end of the project. The company has a tax rate of 34 percent and the project's required return is 8 percent. What is the net present value of this project?

Answer 1

Year		0	1	2	3	4	Total
Amount In		$	$	$	$	$	$
Fixed Assets	A	-187000	187000	187000	187000	187000
Depreciation %	B		33.33%	44.45%	14.81%	7.41%
Depreciation Amount	C= A*B		62327	83122	27695	13857
Tax Saved on Deprecaition @34% on C	G		21191	28261	9416	4711
Annual Sales	D		124000	124000	124000	124000
Variable Cost	E		33100	33100	33100	33100
Fixed Cost	F		12650	12650	12650	12650
Tax Saved on Depreciation	G		21191	28261	9416	4711
Working Capital	H	-3250	0	0	0	3250
Toatl Cash Inflow	I=(D-E-F+G+H)	-190250	99441	106511	87666	86211
P V Value 8%		1.00	(1/1.08)	(1/(1.08)^2)	(1/(1.08)^3)	(1/(1.08)^4)
	J	1.0000	0.9259	0.8573	0.7938	0.7350
Discounted Cash Flow (NPV)	K= I*J	-190250	92075	91316	69592	63368	126102