Question

Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 4-year tax life, would be depreciated by the straight-line method over its 4-year life, and would have a zero salvage value. At the end of the project, the equipment would be sold for $8,000 cash. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project’s 4-year life. What is the project’s NPV?

Discount rate 10.0%

investment cost $65,000

Sales revenues, each year $65,500

Operating costs (excl. deprec.), each year           $25,000

Tax rate 30.0%

Ans:

Cash flow in Capital investment at Year 0 = $

Cash flow in Capital investment at Year 4 = $

OCF for Year 1 = $

OCF for Year 2 = $

OCF for Year 3 = $

OCF for Year 4 = $

Total CF for Year 0 = $

Total CF for Year 1 = $

Total CF for Year 2 = $

Total CF for Year 3 = $

Total CF for Year 4 = $    

NPV for the project = $

Answer 1

Detailed answer is provided in the hand written notes below