Question

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $505,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $93,000 at the end of the project in 5 years. Sales would be $339,000 per year, with annual fixed costs of $63,000 and variable costs equal to 38 percent of sales. The project would require an investment of $57,000 in NWC that would be returned at the end of the project. The tax rate is 21 percent and the required return is 11 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV= _____

Answer 1

Annual Net Income:
Annual sales		339000
Less: FC		63000
Less: VC (339000*38%)		128820
Net Income before taxx		147180
Less: tax @ 21%		30907.8
After taxa Income		116272.2
Cashflows:
			YEar0	Year1	YEar2	Year3	Year4	YEar5
Initial investment			-505000
Investment of WC			-57000
After tax income				116272.2	116272.2	116272.2	116272.2	116272.2
Tax shield on dep				106050
(505000*21%)
Release in WC								57000
After tax salvage value
(93000-21%)								73470
Cash flows			-562000	222322.2	116272.2	116272.2	116272.2	246742.2
PVF at 11%			1	0.900901	0.811622	0.731191	0.658731	0.593451
Present value of CF			-562000	200290.3	94369.13	85017.23	76592.1	146429.5
NET present value			40698
Answer is $ 40698