Question
In: Finance
Eggs Inc. is considering the purchase of new equipment that will allow them to collect a...
Eggs Inc. is considering the purchase of new equipment that will allow them to collect a loose head feathers for sale. the equipment will cost $465,000 it will be eligible for 100% bonus depreciation the equipment can be sold for $69,000 at the end of the project in five years sales would be $307,000 per year with annual fix cost of $55,000 and variable cost equals 36% of sales the project would require an investment of $41,000 in NWC that would be returned at the end of the project the tax rate is 23% in the required return is 9%.
Calculate the NPV of this project
Solutions
Expert Solution
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Cost of New equipment | -465000 | |||||
| Sales | 307000 | 307000 | 307000 | 307000 | 307000 | |
| (-) Fixed costs | 55000 | 55000 | 55000 | 55000 | 55000 | |
| (-) Variable costs [ 36% of sales ] | 110520 | 110520 | 110520 | 110520 | 110520 | |
| (-) Depreciation | 465000 | |||||
| Profit before tax | -323520 | 141480 | 141480 | 141480 | 141480 | |
| (-) Taxes @ 23% | -74409.60 | 32540.40 | 32540.40 | 32540.40 | 32540.40 | |
| Net income | -249110.40 | 108939.60 | 108939.60 | 108939.60 | 108939.60 | |
| (+) Depreciation | 465000 | |||||
| (+) Net working capital | -41000 | 41000 | ||||
| (+) After tax salvage value [ 69000*(1-23%) ] | 53130 | |||||
| Free cash flow | -506000 | 215889.60 | 108939.60 | 108939.60 | 108939.60 | 203069.60 |
| Present value factor @ 9% | 1 | 0.917431193 | 0.841679993 | 0.77218348 | 0.708425211 | 0.649931386 |
| Present value | -506000.00 | 198063.85 | 91692.28 | 84121.36 | 77175.56 | 131981.31 |
| Net present value (NPV) | 77034.36 |
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