In: Finance
Suppose you are building a refrigerated extension to a storage facility. The cost of labor and materials to build it are 58,000 and 160,000, respectively. The pre-tax discount rate is 12%, the tax rate is 20%, and the extension would add $220,000 to the value of the facility if sold in 10 years. Calculate the present value of the initial cost.
Cost of labour = 58,000
Cost of material = 160,000
Discount rate = 12%
Salvage Value = 220,000
Tax rate = 20%
After tax Salvage value = 220000*(1-0.2) = 176,000
PV of After tax Salvage value = 176,000/(1.12^10) = 56,667.29
PV of Initial cost = 58000+160000-56667.29 = 161332.71