Question

Genoa Company is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require additional net operating working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? WACC 15.50% Net investment in fixed assets (basis) $75,000 Required net operating working capital $41,000 Straight-line depreciation rate 33.333% Annual sales revenues $79,000 Annual operating costs (excl. depr.) $25,000 Tax rate 35.0% $9,319 $9,986 $8,845 $9,616 $9,905

Answer 1

Answer is $ 9905
Explanation:
NET PRESENT VALUE
Annual revenue			79000
Less: Annual operating cost			25000
Less: Annual depreciation			25000
(75000/3) *
Net income before tax			29000
less: tax @35%			10150
Net income after tax			18850
Add: Annual depreciation			25000
Annual cash inflows			43850
Annuity factor at 15.50% for 3 yrs			2.26443
Present value of cash inflows			99296
Add: Working capital released			26609
($41000*0.649)
Present value of cash infflows			125905
Less: Initial Investment			116000
(75000+41000)
Net present value			9905