In: Finance
A company is considering a new project requiring an upfront fixed-asset investment of $1,000,000 with an economic life of five years. Depreciation is taken on a straight-line basis, with no expected salvage value. Net working capital required immediately is expected to be $100,000 and will be recovered in full upon the project's completion in five years. In the expected-scenario forecast, the annual sales volume is 49,200 units, while the sale price is $133 per unit with a variable cost of $83 per unit. Annual fixed costs are estimated to $1,150,000. If the appropriate discount rate is 12.50% and the tax rate 30%, what is the project's NPV?
$2,373,314 |
|
$2,434,168 |
|
$2,495,022 |
|
$2,555,877 |
|
$2,616,731 |
Years | 0 | 1 | 2 | 3 | 4 | 5 |
Cost of fixed-asset investment | -1000000 | |||||
Sales [ 49200*133 ] | 6543600 | 6543600 | 6543600 | 6543600 | 6543600 | |
(-) Fixed costs | 1150000 | 1150000 | 1150000 | 1150000 | 1150000 | |
(-) Variable costs [ 49200*83 ] | 4083600 | 4083600 | 4083600 | 4083600 | 4083600 | |
(-) Depreciation [ 1000000/5 ] | 200000 | 200000 | 200000 | 200000 | 200000 | |
Profit before tax | 1110000 | 1110000 | 1110000 | 1110000 | 1110000 | |
(-) Taxes @ 30% | 333000 | 333000 | 333000 | 333000 | 333000 | |
Net income | 777000 | 777000 | 777000 | 777000 | 777000 | |
(+) Depreciation | 200000 | 200000 | 200000 | 200000 | 200000 | |
(+) Net working capital | -100000 | 100000 | ||||
(+) After tax salvage value | 0 | |||||
Free cash flow | -1100000 | 977000 | 977000 | 977000 | 977000 | 1077000 |
Present value factor @ 12.50% | 1 | 0.888889 | 0.790123 | 0.702332 | 0.624295 | 0.554929 |
Present value | -1100000.00 | 868444 | 771951 | 686178 | 609936 | 597658 |
Net present value (NPV) | 2434168 |