Question

Outdoor Sports is considering adding a putt putt golf course to its facility. The course would cost $170,000, would be depreciated on a straight-line basis over its 6-year life, and would have a zero salvage value. The sales would be $78,400 a year, with variable costs of $27,550 and fixed costs of $12,150. In addition, the firm anticipates an additional $16,500 in revenue from its existing facilities if the putt putt course is added. The project will require $2,750 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 9 percent and a tax rate of 40 percent?

Multiple Choice

• $31,054

• $53,724

• $28,304

• $16,107

• $29,414

Answer 1

Year	0	1	2	3	4	5	6
Sales		78400	78400	78400	78400	78400	78400
Add Sales		16500	16500	16500	16500	16500	16500
Sales		94900	94900	94900	94900	94900	94900
Variable Cos		27550	27550	27550	27550	27550	27550
Fixed		12150	12150	12150	12150	12150	12150
Cost		39700	39700	39700	39700	39700	39700
EBITDA		55200	55200	55200	55200	55200	55200
Depreciation		28333.33	28333.33	28333.333	28333.33	28333.33	28333.33
Tax		10746.67	10746.67	10746.667	10746.67	10746.67	10746.67
Net Earnings		16120	16120	16120	16120	16120	16120
Add Dep		28333.33	28333.33	28333.333	28333.33	28333.33	28333.33
Cashflow		44453.33	44453.33	44453.333	44453.33	44453.33	44453.33
Outflow	-172750						2750
Net Cashflow	-172750	44453.33	44453.33	44453.333	44453.33	44453.33	47203.33
9%	-172750	40782.87	37415.48	34326.13	31491.86	28891.62	28145.81
NPV	28303.77

Answer is 28304