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 $465,000 and will be eligible for 100 percent bonus depreciation. the equipment can be sold for $69,000 at the end of the project in 5 years. sales would be $307,000 per year, with annual fixed costs of $55,000 and variable costs equal to 36 percent of sales. the project would require an investment of $41,000 in nwc that would be returned at the end of the project. the tax rate is 23 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: 51,334.24

Explanation:

Investment

465,000

100% bonus depreciation tax shield: 465,000 x 23% = 106,950

cash inflow per year:

sales                           307,000

variable 36% of sales:(110,520)

fixed cost                   (55,000)  

earning before tax:      141,480

tax expense 23%        (32,540.4)  

earning after tax        108,939.6‬

This income will come during 5 years. We will discount at 9%

C108,940

time   5

rate  0.09

PV$423,737.0528

Then we calculate the release of the working capital at the end of the project as a lump sum:

Maturity  41,000.00

time   5.00

rate  0.09

PV   26,647.19

Now, we calculate the NPV:

investment - working capital + present value of cash inflow + release of WC

-465,000 -41,000 + 106,950 + 423,737.05 + 26,647.19

NPV: 51,334.24

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