Question

QUESTION 11

1. Garner-Wagner Manufacturing Inc. is considering some new equipment whose data are shown below. The equipment has a 3-year tax life and would be fully depreciated by the straight-line method over 3 years, but it would have a positive pre-tax salvage value at the end of Year 3, when the project would be closed down. Also, some new working capital would be required, but it would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's 3-year life.

   Project cost of capital (r)                                                                  10.0%

   Net investment in fixed assets (depreciable basis) $200,000

   Required new working capital                                                          $30,000

   Straight-line depreciation rate                                                        33.3333%

   Sales revenues, each year $150,000

   Operating costs (excl. depreciation), each year $75,000

   Expected pretax salvage value $15,000

   Tax rate                                                                                             35.0%

   What is the project’s operating cash flows from Year 1 to Year 3 for Garner-Wagner Manufacturing Inc.?

   		$62,234.33
   		$65,478.67
   		$68,742.33
   		$72,083.33
   		$74,093.67

10 points   

QUESTION 12

1. Using information from Question 11. What is the project's NPV for Garner-Wagner Manufacturing Inc.?

   		$10,245.23
   		$(20,874.66)
   		$21,005.45
   		$(12,155.78)
   		$(15,363.17)

Answer 1

Calculate operating cash flow and NPV as follows:

Operating cash flow = $72,083.33

NPV = ($20,874.66)

Bracket indicate negative NPV

Formula:

Please rate answer by providing thumbs up.

Thank you.