Question

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $440,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $54,000 at the end of the project in 5 years. Sales would be $287,000 per year, with annual fixed costs of $50,000 and variable costs equal to 37 percent of sales. The project would require an investment of $31,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 10 percent.

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Years	0	1	2	3	4	5
Cost of New equipment	-440000
Sales		287000	287000	287000	287000	287000
(-) Fixed costs		50000	50000	50000	50000	50000
(-) Variable costs [37% of sales ]		106190	106190	106190	106190	106190
(-) Depreciation		440000
Profit before tax		-309190	130810	130810	130810	130810
(-) Taxes @ 23%		-71113.70	30086.30	30086.30	30086.30	30086.30
Net income		-238076.30	100723.70	100723.70	100723.70	100723.70
(+) Depreciation		440000
(+) Net working capital	-31000					31000
(+) After tax salvage value [ 54000*(1-23%) ]						41580
Free cash flow	-471000	201923.70	100723.70	100723.70	100723.70	173303.70
Present value factor @ 10%	1	0.909090909	0.826446281	0.751314801	0.683013455	0.620921323
Present value	-471000.00	183567.00	83242.73	75675.21	68795.64	107607.96
Net present value (NPV)	47888.54