Question

Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...

Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 340,000 dollars today. The equipment would be depreciated straight-line to 20,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 34,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 212,000 dollars and relevant costs are expected to be 111,000 dollars. The tax rate is 50 percent and the cost of capital for the project is 9.78 percent. What is the NPV of the project?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Statement showing NPV

Particulars 0 1 2 3 Total = Sum of NPV
Purchase price of equipment -340000
Revenue 212000 212000 212000
Expense -111000 -111000 -111000
Depreciation -160000 -160000 -20000
PBT -59000 -59000 81000
Tax @ 50% 29500 29500 -40500
PAT -29500 -29500 40500
Add: Depreciation 160000 160000 20000
Annual cash flow 130500 130500 60500
Salvage value of equipment 34000
Total cash flow -340000 130500 130500 94500
PVIF @ 9.78% 1.0000 0.9109 0.8298 0.7558
PV -340000.00 118874.11 108283.94 71426.95 -41414.99

Thus NPV = -41414.99 $

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
28. Litchfield Design is evaluating a 3-year project that would involve buying a new piece of...
28. Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 130,000 dollars today. The equipment would be depreciated straight-line to 20,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 33,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 111,000 dollars and relevant costs are expected to be 27,000 dollars. The tax rate is 50...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 190,000 dollars today. The equipment would be depreciated straight-line to 30,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 43,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 156,000 dollars and relevant costs are expected to be 41,000 dollars. The tax rate is 50 percent...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment...
Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 430,000 dollars today. The equipment would be depreciated straight-line to 40,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 53,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 303,000 dollars and relevant costs are expected to be 90,000 dollars. The tax rate is 50 percent...
Red Royal Packaging is evaluating the medical clinic project, a 2-year project that would involve buying...
Red Royal Packaging is evaluating the medical clinic project, a 2-year project that would involve buying equipment for 36,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 23,000 dollars in year 2. Relevant annual revenues are expected to be 60,000 dollars in year 1 and 60,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be 18,000...
25. Red Royal Banking is evaluating the medical clinic project, a 2-year project that would involve...
25. Red Royal Banking is evaluating the medical clinic project, a 2-year project that would involve buying equipment for 66,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 8,000 dollars in year 2. Relevant annual revenues are expected to be 108,000 dollars in year 1 and 108,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be...
White Mountain Banking is evaluating the pet care center project, a 2-year project that would involve...
White Mountain Banking is evaluating the pet care center project, a 2-year project that would involve buying equipment for 52,000 dollars that would be depreciated to zero over 2 years using straight-line depreciation. Cash flows from capital spending would be $0 in year 1 and 23,000 dollars in year 2. Relevant annual revenues are expected to be 96,000 dollars in year 1 and 96,000 dollars in year 2. Relevant expected annual variable costs from the project are expected to be...
1. Fairfax Pizza is evaluating a 1-year project that would involve an initial investment in equipment...
1. Fairfax Pizza is evaluating a 1-year project that would involve an initial investment in equipment of 22,100 dollars and an expected cash flow of 24,800 dollars in 1 year. The project has a cost of capital of 8.95 percent and an internal rate of return of 12.22 percent. If Fairfax Pizza were to use 22,100 dollars in cash from its bank account to purchase the equipment, the net present value of the project would be 663 dollars. However, Fairfax...
Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment...
Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment for 305,000 dollars. During year 1, project A is expected to have relevant revenue of 144,000 dollars, relevant costs of 50,000 dollars, and some depreciation. Middlefield Motors would need to borrow 305,000 dollars for the equipment and would need to make an interest payment of 15,250 dollars to the bank in year 1. Relevant net income for project A in year 1 is expected...
Orange Valley Industrial is considering a project that would last for 2 years. The project would...
Orange Valley Industrial is considering a project that would last for 2 years. The project would involve an initial investment of 71,000 dollars for new equipment that would be sold for an expected price of 68,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 21,000 dollars over 5 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 78,000 dollars per year and...
Violet Sky Banking is considering a project that would last for 2 years. The project would...
Violet Sky Banking is considering a project that would last for 2 years. The project would involve an initial investment of 139,000 dollars for new equipment that would be sold for an expected price of 102,000 dollars at the end of the project in 2 years. The equipment would be depreciated to 19,000 dollars over 6 years using straight-line depreciation. In years 1 and 2, relevant annual revenue for the project is expected to be 129,000 dollars per year and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT