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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. The company has a tax rate of 34 percent and the project's required return is 11 percent. What is the net present value of this project?

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Annual Operating cahssflows
Year1 Year2 YEar3 Year4
Annual sales 100000 100000 100000 100000
Less: Cost
Variable cost 27450 27450 27450 27450
Fixed cost 12050 12050 12050 12050
Depreciation 54328 72454 24140 12078
Net income before tax 6172 -11954 36360 48422
Less: tax @ 34% 2098 4064 12362 16463
After tax Income 4074 -7890 23998 31959
Add: Depreciation 54328 72454 24140 12078
Annual cashflows 58402 64564 48138 44037
NPV at 11%
Year0 Year1 Year2 Year3 Year4
Initial Investment -163000
Working capital investment -2650
Annual cashflows 58402 64564 48138 44037
Release of working capital 2650
Net casshflows -165650 58402 64564 48138 46687
PVF at 11% 1 0.900901 0.811622 0.731191 0.658731
Present value of cashflows -165650 52614.41 52401.59 35198.09 30754.17
NPV 5318

jeff jeffy answered 1 year ago
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