Question

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $169,000 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 $104,000, variable costs of $27,600, and fixed costs of $12,200. The project will also require net working capital of $2,800 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 9 percent. What is the net present value of this project?

Answer 1

Net Present value is $ 16,111.90

Year	0	1	2	3	4
Fixed asset	$ -1,69,000.00
Working Capital	$       -2,800.00
Sales		$ 1,04,000.00	$ 1,04,000.00	$ 1,04,000.00	$ 1,04,000.00
Variable cost		$   -27,600.00	$   -27,600.00	$   -27,600.00	$   -27,600.00
Fixed Cost		$   -12,200.00	$   -12,200.00	$   -12,200.00	$   -12,200.00
Depreciation		$   -56,327.70	$   -75,120.50	$   -25,028.90	$   -12,522.90
Profit Before tax		$       7,872.30	$   -10,920.50	$     39,171.10	$     51,677.10
Tax Expense		$     -2,676.58	$       3,712.97	$   -13,318.17	$   -17,570.21
Net Income		$       5,195.72	$     -7,207.53	$     25,852.93	$     34,106.89
Depreciation		$     56,327.70	$     75,120.50	$     25,028.90	$     12,522.90
Operating cash flow		$     61,523.42	$     67,912.97	$     50,881.83	$     46,629.79
Release of working capital					$       2,800.00
Total cash flow	$ -1,71,800.00	$     61,523.42	$     67,912.97	$     50,881.83	$     49,429.79
Discount factor @ 9%	1.0000	0.9174	0.8417	0.7722	0.7084
Present Value	$ -1,71,800.00	$     56,443.50	$     57,160.99	$     39,290.11	$     35,017.31
Net Present Value	$       16,111.90
Working:
Depreciation Schedule:
Year		1	2	3	4
Cost		$ 1,69,000.00	$ 1,69,000.00	$ 1,69,000.00	$ 1,69,000.00
Depreciation rate		33.33%	44.45%	14.81%	7.41%
Depreciation expense		$     56,327.70	$     75,120.50	$     25,028.90	$     12,522.90