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?

Expert Solution

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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