Question

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $475,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $75,000 at the end of the project in 5 years. Sales would be $315,000 per year, with annual fixed costs of $57,000 and variable costs equal to 38 percent of sales. The project would require an investment of $45,000 in NWC that would be returned at the end of the project. The tax rate is 25 percent and the required return is 11 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Tax rate		25%
	Year-0	Year-1	Year-2	Year-3	Year-4	Year-5
Sale		315,000	315,000	315,000	315,000	315,000
Less: Operating Cost-38%		119,700	119,700	119,700	119,700	119,700
Contribution		195,300	195,300	195,300	195,300	195,300
Less: Fixed Cost		57,000	57,000	57,000	57,000	57,000
Less: Depreciation as per table given below		475,000	-	-	-	-
Profit before tax		(336,700)	138,300	138,300	138,300	138,300
Tax		(84,175)	34,575	34,575	34,575	34,575
Profit After Tax		(252,525)	103,725	103,725	103,725	103,725
Add Depreciation		475,000	-	-	-	-
Cash Profit After tax		222,475	103,725	103,725	103,725	103,725
Cost of macine			475,000
Depreciation			475,000
WDV			-
Sale price			75,000
Profit/(Loss)			75,000
Tax			18,750
Sale price after tax			56,250
Depreciation		Year-1	Year-2	Year-3	Year-4	Year-5	Total
Cost		475,000	475,000	475,000	475,000	475,000
Dep Rate		100.00%
Deprecaition		475,000	-	-	-	-	475,000
Calculation of NPV
						11.00%
Year		Captial	Working captial	Operating cash	Annual Cash flow	PV factor	Present values
0		(475,000)	(45,000)		(520,000)	1.000	(520,000.00)
1				222,475	222,475	0.901	200,427.93
2				103,725	103,725	0.812	84,185.54
3				103,725	103,725	0.731	75,842.83
4				103,725	103,725	0.659	68,326.87
5		56,250	45,000	103,725	204,975	0.593	121,642.69
					Net Present Value		30,425.85