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 53,400 units, while the sale price is $138 per unit with a variable cost of $76 per unit. Annual fixed costs are estimated to $1,164,000. If the appropriate discount rate is 12.50% and the tax rate 30%, what is the project's NPV?

Answer 1

Answer:
Calculation of NPV
Formula will will use here
NPV =	Present value of Cash inflows - Initial cost
Project A
Initial cost =	1100000.00
Year	1	2	3	4	5
Sales	7369200	7369200	7369200	7369200	7369200
Less: Cost	4058400	4058400	4058400	4058400	4058400
Gross profit	3310800	3310800	3310800	3310800	3310800
Less: Depreciation	200000	200000	200000	200000	200000
Less: Fixed cost	1164000	1164000	1164000	1164000	1164000
Profit before tax	1946800	1946800	1946800	1946800	1946800
Less: Tax	681380	681380	681380	681380	681380
Proft after tax	1265420	1265420	1265420	1265420	1265420
Add: Depreciation	200000	200000	200000	200000	200000
Add: Working capital	0	0	0	0	100000
Ne operating cash flow	1465420	1465420	1465420	1465420	1565420
PVF	0.888889	0.790123	0.702332	0.624295	0.554929
Present value	1302595.56	1157862.72	1029211.30	914854.49	868696.89	5273220.95
Total			14738400
NPV of Project
Present vallue of cash inflows		5273220.95
Less: Initial cost		1100000.00
NPV of the Project		4173220.95	(Answer)