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The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The...

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

34,000
2

42,000
3

16,000
4

10,000
Thereafter

0

It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year 0) investment in working capital of .20 × 34,000 × $40 = $272,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $212,000. 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 30%. What is the net present value of the project? The discount rate is 20%. Use the MACRS depreciation schedule.

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