Question

In: Finance

Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $643,000...

Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $643,000 that would be depreciated on a straight-line basis to zero over the 4-year life of the project. The equipment will have a market value of $168,000 at the end of the project. The project requires $38,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $197,400 a year. What is the net present value of this project if the relevant discount rate is 14 percent and the tax rate is 35 percent?

?$22,138

?$18,679

–$19,924

?$23,841

?$16,811

Solutions

Expert Solution

?$18,679

Working:

Net Present Value is calculated as follows:
Year 0 1 2 3 4 Total
Operating cash flow $       1,97,400 $    1,97,400 $    1,97,400 $    1,97,400
Investment in new fixed assets $    -6,43,000
Investment in net working capital $       -38,000
Release of net working capital $       38,000
After tax sale of equipment $    1,09,200
Total cash flow $    -6,81,000 $       1,97,400 $    1,97,400 $    1,97,400 $    3,44,600
Discount factor @ 14%             1.0000               0.8772            0.7695            0.6750            0.5921
Present Value $    -6,81,000 $       1,73,158 $    1,51,893 $    1,33,239 $    2,04,031 $   -18,679
Working;
After tax sale proceeds = $       1,68,000 x (1-0.35) = $    1,09,200

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $176,000 at the end of the project. The project requires $46,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $151,600 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $651,000
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $651,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $169,000 at the end of the project. The project requires $39,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow $165,300 a year. What is the net present value...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $673,000...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $673,000 that would be depreciated on a straight-line basis to zero over the 4-year life of the project. The equipment will have a market value of $180,000 at the end of the project. The project requires $50,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $215,900 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $665,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $176,000 at the end of the project. The project requires $46,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $151,600 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $695,000...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $695,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $191,000 at the end of the project. The project requires $61,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $164,600 a year. What is the net...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $687,000...
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $687,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $187,000 at the end of the project. The project requires $57,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $176,600 a year. What is the net...
Serenity by Jan is considering expanding its operations. The expansion will require new equipment costing​ $750,000...
Serenity by Jan is considering expanding its operations. The expansion will require new equipment costing​ $750,000 that would be depreciation straightlin to zero over a 4 year life. The estimated​ after-tax proceeds on the sale this equipment is​ $124,000. The project requires an investment in net working capital of​ $40,000. The projected annaul operating cash flow is​ $230,000. Serenity by​ Jan's tax rate is​ 34%.   What are the annual cash flows for this​ project? Year​ 0: Year​ 1: Year​ 2:...
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase...
Argyl Manufacturing is evaluating the possibility of expanding its operations. This expansion will require the purchase of land at a cost of $100,000. A new building will cost $110,000 and will be depreciated on a straight-line basis over 20 years to a salvage value of $0. Actual land salvage at the end of 20 years is expected to be $150,000. Actual building salvage at the end of 20 years is expected to be $140,000. Equipment for the facility is expected...
Bob’s Burgers is considering expanding operations by establishing a delivery business. This will require the purchase...
Bob’s Burgers is considering expanding operations by establishing a delivery business. This will require the purchase of new hot plates, vats and a delivery vehicle that will cost a total of $48,000, including installation. The items will be depreciated using the straight-line method (the company has been decided to work out the effective life itself rather than use an effective life determined by the Commissioner of Taxation). The equipment and vehicle are expected to need replacing in five years, but...
Greencastle Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase...
Greencastle Pizzeria is considering expanding operations by establishing a delivery business. This will require the purchase of an oven that will cost $60,000, including installation. The oven is expected to last five years, have a $6,000 residual value, and will be depreciated using the straight-line method. Cash flows associated with the delivery business are as follows: Item Year 1 Year 2 Year 3 Year 4 Year 5 Revenue $78,000 $79,560 $93,884 $105,600 $114,290 Ingredients (30,120 ) (33,120 ) (36,474 )...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT