Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $193,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $193,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $130,000, variable costs of $34,900, and fixed costs of $12,800. The project will also require net working capital of $3400 that will be returned at the end of the project. The company has a tax rate of 34 percent and the project's required return is 14 percent. What is the net present value of this project?

A. $16,336

B. $13,314

C. $11,680

D. $14,948

E. $10,706

Expert Solution

Time line		0	1	2	3	4



Cost of new machine		-193000
Initial working capital		-3400
=Initial Investment outlay		-196400

3 years MACR rate			33.33%	44.45%	14.81%	7.41%
Sales			130000	130000	130000	130000
Profits	Sales-variable cost		95100	95100	95100	95100
Fixed cost			-12800	-12800	-12800	-12800
Operating cost			0	0	0	0
-Depreciation	=Cost of machine*MACR%		-64326.9	-85788.5	-28583.3	-14301.3

=Pretax cash flows			17973.1	-3488.5	53716.7	67998.7
-taxes	=(Pretax cash flows)*(1-tax)		11862.246	-2302.41	35453.022	44879.142
+Depreciation			64326.9	85788.5	28583.3	14301.3
=after tax operating cash flow			76189.146	83486.09	64036.322	59180.442

reversal of working capital						3400


+Tax shield on salvage book value	=Salvage value * tax rate					0
=Terminal year after tax cash flows						3400

Total Cash flow for the period		-196400	76189.146	83486.09	64036.322	62580.442
Discount factor=	(1+discount rate)^corresponding period	1	1.14	1.2996	1.481544	1.6889602
Discounted CF=	Cashflow/discount factor	-196400	66832.584	64239.8353	43222.693	37052.645
NPV=	Sum of discounted CF=	14947.7584

answer is D

jeff jeffy answered 1 year ago

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $203,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $203,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $140,000, variable costs of $37,900, and fixed costs of $13,050. The project will also require net working capital of $3,650 that will be returned at the end of the project....

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $159,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $159,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $96,000, variable costs of $27,350, and fixed costs of $11,950. The project will also require net working capital of $2,550 that will be returned at the end of the project....

Delia Landscaping is considering of new 4 year project. the necessary fixed assets will cost $205,000...

Delia Landscaping is considering of new 4 year project. the necessary fixed assets will cost $205,000 and be depreciated on a 3 year MACRS and have no salvage value. the MACRS percentages each year are 33.33% 44.45% and 14.81% and 7.41% respectively. the project will have annual sales of 142,000 variable cost of 38,500 and fix cost of 13,100. the project will also require a networking capital of 3700 and will be returning to end of the project. the company...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $163,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $163,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $100,000, variable costs of $27,450, and fixed costs of $12,050. The project will also require net working capital of $2,650 that will be returned at the end of the project....

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $187,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $187,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $124,000, variable costs of $33,100, and fixed costs of $12,650. The project will also require net working capital of $3,250 that will be returned at the end of the project....

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $183,000 and...

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $183,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $120,000, variable costs of $31,900, and fixed costs of $12,550. The project will also require net working capital of $3,150 that will be returned at the end of the project....

Delia Landscaping is considering a new 4-year project. The equipment necessary would cost $173,000 and be...

Delia Landscaping is considering a new 4-year project. The equipment necessary would cost $173,000 and be depreciated on a 3-year MACRS to a book value of zero. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The project will have annual sales of $110,000, variable costs of $27,700, and fixed costs of $12,300. The project...

Emulsified Fat Offal Tube, Inc. is considering a new 4-year project. The necessary fixed assets will...

Emulsified Fat Offal Tube, Inc. is considering a new 4-year project. The necessary fixed assets will cost $193,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $130,000, variable costs of $34,900, and fixed costs of $12,800. The project will also require net working capital of $3,400 that will be returned at the end...

A company is evaluating a new 4-year project. The equipment necessary for the project will cost...

A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,600,000 and can be sold for $725,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment?

Ausel’s is considering a ten-year project that will require $850,000 for new fixed assets that will...

Ausel’s is considering a ten-year project that will require $850,000 for new fixed assets that will be depreciated straight-line to a zero book value over the ten years. At the end of the project, the fixed assets can be sold for 15 percent of their original cost. The project is expected to generate annual sales of $928,000 and costs of $721,000. The tax rate is 35 percent and the required rate of return is 14.6 percent. What is the net...

Question