With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,200 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $49,000 in net working capital to start. Total fixed costs are $131,000 per year, variable production costs are $18 per unit, and the units are priced at $60 each. The equipment needed to begin production will cost $585,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 22 percent and the required rate of return is 17 percent. What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 9,000 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $55,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $115,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $195,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 40 percent and the required rate of return is 25 percent. What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 7,900 in the first year, with growth of 7 percent each year for the next five years. Production of these lamps will require $44,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $104,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $184,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 35 percent and the required rate of return is 25 percent. What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,600 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $51,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $111,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $191,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 35 percent and the required rate of return is 25 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV $ ____________

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes.

They projected unit sales of these lamps to be 14,000 for each of the next five years. Production of these lamps will require $35,000 in net working capital invested immediately. The working capital will be fully recovered at the end of year 5. Fixed costs are $95,000 per year, variable production costs are $30 per unit, and the units are priced at $65 each.

a. The equipment needed to begin production will cost $500,000. The equipment will be depreciated using the straight-line method over a five-year life and is expected to have a salvage value of $80,000. The effective tax rate is 21 percent, and the required rate of return is 10 percent. What is the Net Present Value of this project?

b. After you complete this task, the two entrepreneurs want you to tell them what the impact on the NPV would be if the Production cost per unit increased to $45.  

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,600 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $57,000 in net working capital to start. Total fixed costs are $143,000 per year, variable production costs are $17 per unit, and the units are priced at $60 each. The equipment needed to begin production will cost $605,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 21 percent and the required rate of return is 17 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A friend of yours is working toward a master of business administration (MBA) degree. He e-mails you the following note:

"Hey! How are things going? I need your help! We are studying income taxes in my Financial Accounting class and just finished talking about deferred taxes. I think the professor said something about adjusting the value of deferred taxes when it's an asset but not when it's a liability. When I looked at my homework problem, the balance sheet shows both a deferred tax asset and a deferred tax liability. Shouldn't it be one or the other? And why would one need the value adjusted for one, but not the other? Help!"

You want to help your friend, but you remember having some questions yourself:

• Analyze why FASB requires companies to report both deferred tax assets and deferred tax liabilities instead of netting them.
• Examine why the FASB requires valuation adjustments for deferred tax assets but does not for deferred tax liabilities.