Question

You have been hired as a capital budgeting analyst by Advent Sports, a sporting goods firm that manufactures athletic shoes. The firm believes it can generate another $10 million per year over the next 10 years by investing $10 million in a new distribution system (which will be depreciated over the system's 10-year life to a salvage value of zero). The firm will also need an initial increase of $1 million in net working capital to take on this project. The company expects its variable costs associated with these sales to be 40% of revenues, and additional advertising costs are anticipated to be $1 million per year. The firm is in the 40% tax bracket and has a hurdle rate of 8%. What is the project's NPV expected to be?

Select one:

A. $12,277,470

B. $14,556,754

C. $15,876,943

D. $17,834,221

Please dont do the problem in Excel. I need the step by step process how to do this by hand.

Answer 1

I HAVE JUST WRITTEN IN EXCEL. HAND WRITING IS NOT GOOD. NO EXCEL FUNCTION IS USED. ALL FORMULAS ARE GIVEN. YOU CAN CHECK. I ASSURE THAT 100% DOUBTS WILL BE CLEARED IF ANY