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 $485,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $81,000 at the end of the project in 5 years. Sales would be $375,000 per year, with annual fixed costs of $59,000 and variable costs equal to 40 percent of sales. The project would require an investment of $49,000 in NWC that would be returned at the end of the project. The tax rate is 22 percent and the required return is 13 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

Net Income:
Annual revenue			375000
Less: Vc @ 40% of sales			150000
Less: Fixed cost			59000
Before tax Income			166000
Less: tax @ 22%			36520
After Tax Icnome			129480
Cashflows and NPV
			YEar0	YEar1	YEar2	Year3	YEar4	YEar5
Initial Investment			-485000
Investment on WC			-49000
Net Income				129480	129480	129480	129480	129480
Tax shield on dep (485000*22%)				106700
After tax salvage (81000-22%)								63180
Release of WC								49000
Net cashflows			-534000	236180	129480	129480	129480	241660
PVF at 13%			1	0.8849558	0.783147	0.69305	0.613319	0.54276
Present value of CF			-534000	209008.85	101401.8	89736.14	79412.51	131163.4
NPV			76722