Question

Eggz, Inc., is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $480,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $78,000 at the end of the project in 5 years. Sales would be $362,000 per year, with annual fixed costs of $58,000 and variable costs equal to 39 percent of sales. The project would require an investment of $47,000 in NWC that would be returned at the end of the project. The tax rate is 21 percent and the required return is 12 percent.

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Annual after tax Income
Revenue		362000
Less: VC		141180
Less: Fixed cost		58000
Before tax income		162820
Less: tax @ 21%		34192.2
After tax income		128627.8
NPV
			YEar0	YEar1	YEar2	YEar3	YEar4	YEar5
Initial investment			-480000
Investment in WC			-47000
Annual net income				128628	128628	128628	128628	128628
Tax shield n dep (480000*21%)				100800
After taax salvage (78000-21%)								16380
Release of WC								47000
Annual cashflows			-527000	229428	128628	128628	128628	192008
PVF at 12%			1	0.892857	0.797194	0.71178	0.635518	0.567427
Present value			-527000	204846.4	102541.5	91554.87	81745.42	108950.5
NPV			62639
NPV = 62639