Question

This case continues following the new project of the WePROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a very unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client. As we know from the prior case involving this company, more details of the project become apparent and with more precision and certainty. The following are the final values to the data: The cost of the equipment will be $70,000 and this cost is incurred prior to any cash is received by the project. The expected annual cash revenue of the project will be $30,000. The expected annual cash outflows (expenses/costs) are estimated at being $11,000, excluding depreciation. Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment. The discount rate you are assuming is 6%. After 5 years the equipment will stop working and there will be no salvage value. Requirements of the paper: Perform the final NPV calculations and provide a narrative on how you calculated the computations and why (justification of answer). Present your calculated answers in schedule format (a table) along with your narrative. Microsoft Excel is also recommended for calculating and creating a table (your schedule). Then provide a summary conclusion on whether you should continue to pursue this business opportunity. Research, using at least one other sources other than the textbook materials that support your calculations and conclusions.

Answer 1

Cost of the Equipment is 70000.
Calculation of NPV of future cash flows
Period	Cash Inflows (A)	Cash Outflows {B}	Tax Saving on Depreciation (C)	Net Cash Inflows          (A-B+C)	P.V.F	N.P.V
1	30,000	11000	4200	23,200	0.9434	21,887
2	30,000	11000	4200	23,200	0.8900	20,648
3	30,000	11000	4200	23,200	0.8396	19,479
4	30,000	11000	4200	23,200	0.7921	18,377
5	30,000	11000	4200	23,200	0.7473	17,337
						97,728
NPV of the project is 27728 (97728-70000).
Summary: NPV is possitive, it means revenues are greater than costs. Therefore Project is viable.
Note 1:	Calculation of Dep.:
	Depreciation= Cost/Life of the Asset
	Dep.=14000 (70000/5)
Note 2:	Tax Saving on Depreciation:
	Dep*Tax Rate
	4200 (14000*30%)