Problem 9-34 Project Evaluation (LO4)
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $20.
Year | Unit Sales |
1 |
30,000 |
2 |
38,000 |
3 |
12,000 |
4 |
6,000 |
Thereafter |
0 |
It is expected that net working capital will amount to 30% of sales in the following year. For example, the store will need an initial (Year 0) investment in working capital of .30 × 30,000 × $40 = $360,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $208,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 21%. What is the net present value of the project? The discount rate is 15%. Use the MACRS depreciation schedule. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
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