Question

Your company, Dominant Retailer, Inc., is considering a project whose data are shown below. Revenue and cash operating expenses are expected to be constant over the project's 5 year expected operating life; annual sales revenue is $99,000.00 and cash operating expenses are $49,750.00. The new equipment's cost and depreciable basis is $155,000.00 and it will be depreciated by MACRS as 5 year property. The new equipment replaces older equipment that is fully depreciated but can be sold for $7,000. In addition, the new equipment requires an additional $5,000 of net operating working capital, which can be fully recovered at the end of the project. The new equipment is expected to be sold for $10,750 at the end of the project in year 5. The marginal tax rate is 20.00%., what is the NPV of the Project if Dominant Retailer’s WACC is 16.75%? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box.

Answer 1

NPV: - 633.68

Year	0	1	2	3	4	5
Cost of asset	(155,000)
Investment in working capital	(5,000)
After tax salvage value of old asset	5,600
Annual EBITDA ( 99,000 - 49,750 )		49,250	49,250	49,250	49,250	49,250
Annual depreciation		31,000	49,600	29,760	17,856	17,856
Operating cash flows after taxes ( EBITDA x 0.80 + Depreciation x 0.20 )		45,600	49,320	45,352	42,971	42,971
Working capital recovered						5,000
After tax salvage value of new asset						10,386
Totals	(154,400)	45,600	49,320	45,352	42,971	58,357
PV factor at 16.75 %	1.0000	0.8565	0.7336	0.6284	0.5382	0.4610
Present values	(154,400)	39,056.40	36,181.15	28,499.20	23,126.99	26,902.58
Net Present Value	(633.68)