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With the data below, calculate NPV for the following Project Project life is 5 year Sales...

With the data below, calculate NPV for the following Project

Project life is 5 year

Sales forecasting for yr1 is $485,000

follow by sales Growth rate of 15.650%, 13.85%, 12.50% & 10.90%

COGS as % of annual sales is 63.15

cap invest $275,000 to be depreciated over 6year

Salvage value $81,000

Beg NWC $8900

NWC as % of Sales 1.05%

WACC 10.23%

Tax rate 35.40%

The Firm could rent out the property for $1950/yr if they decide to not go forward with the project

Solutions

Expert Solution

Calculation of NPV
Particulars Year1 Year2 Year3 Year4 Year5
Sales 485000 560903 638587 718411 796718
Less
Cost of Goods Sold 306278 354210 403268 453677 503127
Net Working Capital
Opening 8900 5093 5889 6705 7543
Closing 5093 5889 6705 7543 8366
Change 3808 -797 -816 -838 -822
Depreciation 45833 45833 45833 45833 45833
EBIT 129082 161656 190302 219739 248579
Less [email protected]% 45695 57226 67367 77788 87997
EAT 83387 104430 122935 141952 160582
Add Depreciation 45833 45833 45833 45833 45833
Operating Cash Flows 129220 150263 168768 187785 206415
Salvage Value excluding taxes 51516
Total Cash Flows 129220 150263 168768 187785 257931
Discounting [email protected]% 0.9072 0.8230 0.7466 0.6773 0.6145
Discounted Cash Flows 117227 123667 126006 127192 158491
Total Discounted Cash Inflows 652583
Less Cash Outflows 275000
NPV 377583
Renting of Property Year1 Year2 Year3 Year4 Year5
Income 1950 1950 1950 1950 1950
Discounting [email protected]% 0.9072 0.8230 0.7466 0.6773 0.6145
Discounted Cash Flows 1769 1605 1456 1321 1198
Total Cash flows 7349

Since NPV of the project is higher than renting the project can be proceeded

jeff jeffy answered 1 year ago
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