Question

Gaston Company is considering a capital budgeting project that would require a $2,900,000 investment in equipment with a useful life of five years and no salvage value. The company’s tax rate is 30% and its after-tax cost of capital is 13%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows: Sales $ 3,300,000 Variable expenses 1,570,000 Contribution margin 1,730,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 670,000 Depreciation 580,000 Total fixed expenses 1,250,000 Net operating income $ 480,000

Question:Net present vaule?

Answer 1

Net Income	4,80,000
Tax	1,44,000
Net Income after tax	3,36,000
Depreciation	5,80,000
Annual Cash Inflow	9,16,000
PVIFA @13% for 5 years	3.5172
PV of Annual Cash Inflows	32,21,784
Initial Investment	29,00,000
Net Present Value	3,21,784