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 $495,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $87,000 at the end of the project in 5 years. Sales would be $331,000 per year, with annual fixed costs of $61,000 and variable costs equal to 36 percent of sales. The project would require an investment of $53,000 in NWC that would be returned at the end of the project. The tax rate is 24 percent and the required return is 9 percent.

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

NPV=

Answer 1

Annual Operating Cashflows:
Annual revenues			331000
Less: Vc @ 36%			119160
Less: Fixed cost			61000
Before tax Income			150840
Less: tax @ 24%			36202
After Tax Income			114638
NPV at 9%
			Year-0	Year-1	Year-2	Year-3	Year-4	Year-5
Initial Investment			-495000
Investment in WC			-53000
Annual Net Income after tax				114638	114638	114638	114638	114638
Tax shield on Dep (495000*24%)				118800
After tax Salvage (87000-24%)								66120
Release in WC								53000
Net Cashflowws			-548000	233438	114638	114638	114638	233758
PVF at 9%			1	0.917431	0.84168	0.772183	0.708425	0.649931
Present Value of CF			-548000	214163.3	96488.51	88521.57	81212.45	151926.7
NPV			84312.49