Question

Paul Restaurant is considering the purchase of a $10,900 soufflé maker. The soufflé maker has an economic life of 8 years and will be fully depreciated by the straight-line method. The machine will produce 1,200 soufflés per year, with each costing $2.60 to make and priced at $4.95. The discount rate is 10 percent and the tax rate is 23 percent.

  

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Using Excel formula to calculate NPV

		A	B	C	D	E	F	G	H	I
1	Year	0	1	2	3	4	5	6	7	8
2	Initial Invetment	-10900
3	Sales of Scouffles = Price * No of Scouffles		5940	5940	5940	5940	5940	5940	5940	5940
4	Cost of Scouffles = Cost of No of Scouffles		3120	3120	3120	3120	3120	3120	3120	3120
5	Depreciation=Initial Investment/8		1362.50	1362.50	1362.50	1362.50	1362.50	1362.50	1362.50	1362.50
6	EBIT= Sales - Cost - Depreciation		1457.50	1457.50	1457.50	1457.50	1457.50	1457.50	1457.50	1457.50
7	Tax =EBIT*Tax rate		335.23	335.23	335.23	335.23	335.23	335.23	335.23	335.23
8	EAT =EBIT-Tax		1122.28	1122.28	1122.28	1122.28	1122.28	1122.28	1122.28	1122.28
9	Add Depreciation		1362.50	1362.50	1362.50	1362.50	1362.50	1362.50	1362.50	1362.50
10	Free Cash Flow	-10900	2484.78	2484.78	2484.78	2484.78	2484.78	2484.78	2484.78	2484.78
11	NPV	$2,356.09	Using excel =NPV(10%,B10:I10)+A10

NPV = 2356.09

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