Question

McGilla Golf has decided to sell a new line of golf clubs. The length of this project is seven years. The company has spent $100707 on research and development for the new clubs. The plant and equipment required will cost $2868415 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $133082 that will be returned at the end of the project. The OCF of the project will be $811060. The tax rate is 29 percent, and the cost of capital is 13 percent. What is the NPV for this project? (Negative amount should be indicated by a minus sign. Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Answer 1

Time line		0	1	2	3	4	5	6	7
Cost of new machine		-2868415
Initial working capital		-133082
=Initial Investment outlay		-3001497
=after tax operating cash flow			811060	811060	811060	811060	811060	811060	811060
reversal of working capital									133082
+Tax shield on salvage book value	=Salvage value * tax rate								0
=Terminal year after tax cash flows									133082
Total Cash flow for the period		-3001497	811060	811060	811060	811060	811060	811060	944142
Discount factor=	(1+discount rate)^corresponding period	1	1.13	1.2769	1.442897	1.6304736	1.8424352	2.0819518	2.352605
Discounted CF=	Cashflow/discount factor	-3001497	717752.2	635178.9	562105.26	497438.29	440210.87	389567.14	401317.6
NPV=	Sum of discounted CF=	642073