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The Down Towner is considering a project with a life of 4 years that will require...

The Down Towner is considering a project with a life of 4 years that will require $164,800 for fixed assets and $42,400 for net working capital. The fixed assets will be depreciated using the Year 2018 bonus depreciation method. At the end of the project, the fixed assets can be sold for $37,500 cash and the net working capital will return to its original level. The project is expected to generate annual sales of $195,000 and costs of $117,500. The tax rate is 24 percent and the required rate of return is 13 percent. What is the project's net present value? Multiple Choice $46,482.43 $42,316.67 $56,500.00 $59,488.87 $48,909.09

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Expert Solution

Annual operating cahsflows
Sales 195000
Less: Cost 117500
Pre tax income 77500
Less: Tax @ 24% 18600
After tax income 58900
NPV:
Year-0 Year-1 Year-2 Year-3 Year-4
Investment of Fixed assets -164800
Investment of Working capital -42400
Annual cash flows 58900 58900 58900 58900
Tax shield on dep 39552
(164800*0.24)
Release of Working capital 42400
After tax salvage 28500
(37500-24%)
Net cash flows -207200 98452 58900 58900 129800
PVF at 13% 1 0.884956 0.783147 0.69305 0.613319
Present value of cashflows -207200 87125.66 46127.34 40820.65 79608.77
NPV 46482.43
Answer is $ 46482.43

jeff jeffy answered 2 years ago
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