Question

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 optimistic-scenario forecast, the annual sales volume is 34,200 units, while the sale price is $90 per unit with a variable cost of $28 per unit. Annual fixed costs are estimated to $780,000. If the appropriate discount rate is 9.50% and the tax rate 30%, what is the project's NPV?

Answer 1

Solution :-

Depreciation Every Year = ( $1,000,000 / 5 ) = $200,000

NPV of Project = $2,796,627.25

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