Question

You are called by Hope van Dyne to determine whether a new Pym technology for miniaturized food delivery is economically desirable. This project will require $50,000,000 in equipment to infuse food with modified Pym particles. Installing and calibrating the equipment to begin operations will cost an additional $4,500,000. This equipment is categorized as seven-years MACRS property. The project will bring a revenue of $35,000,000 in the first year. After that, the revenue will grow 5% every year (as more people take a liking to miniature food).

The main cost of this project (other than initial installation and calibration) is the salary of lab technicians, which in the first year adds up to $5,000,000. The salary of these workers will increase with the general inflation rate of 2% every year. In addition to this, rent and utilities cost an additional $5,000,000 every year. This cost is expected to stay constant. The project is expected to last ten years, at the end of which all the equipment can be sold for 10% of its original value.

Assuming a tax rate of 21% and an interest rate of 12%, compute income, cash flows, and net present worth over the project life.

Answer 1

	A	B	C	D	K	E	F=A+C+D+E+K	G=F*21%	H=F-G-E	I	J=H*I			Cost of Asset	5,45,00,000
Year	Annual Revenue	Investment in Equipment	Salvage Value	Salary	Rent	Depreciation	Taxable Income	Tax @21%	After tax CF	MARR @10%	PV			Year	Rate	Depreciation
Year 0	-	-5,45,00,000	-	-	-	-	-		-5,45,00,000	1.0000	-5,45,00,000			Year 1	14.29%	77,88,050
Year 1	3,50,00,000	-	-	-50,00,000	-50,00,000	-77,88,050	1,72,11,950	36,14,510	58,09,391	0.8929	51,86,956			Year 2	24.49%	1,33,47,050
Year 2	3,67,50,000	-	-	-51,00,000	-50,00,000	-1,33,47,050	1,33,02,950	27,93,620	-28,37,720	0.7972	-22,62,213			Year 3	17.49%	95,32,050
Year 3	3,85,87,500	-	-	-52,02,000	-50,00,000	-95,32,050	1,88,53,450	39,59,225	53,62,176	0.7118	38,16,691			Year 4	12.49%	68,07,050
Year 4	4,05,16,875	-	-	-53,06,040	-50,00,000	-68,07,050	2,34,03,785	49,14,795	1,16,81,940	0.6355	74,24,084			Year 5	8.93%	48,66,850
Year 5	4,25,42,719	-	-	-54,12,161	-50,00,000	-48,66,850	2,72,63,708	57,25,379	1,66,71,479	0.5674	94,59,845			Year 6	8.92%	48,61,400
Year 6	4,46,69,855	-	-	-55,20,404	-50,00,000	-48,61,400	2,92,88,051	61,50,491	1,82,76,160	0.5066	92,59,271			Year 7	8.93%	48,66,850
Year 7	4,69,03,347	-	-	-56,30,812	-50,00,000	-48,66,850	3,14,05,685	65,95,194	1,99,43,641	0.4523	90,21,491			Year 8	4.46%	24,30,700
Year 8	4,92,48,515	-	-	-57,43,428	-50,00,000	-24,30,700	3,60,74,386	75,75,621	2,60,68,065	0.4039	1,05,28,454
Year 9	5,17,10,941	-	-	-58,58,297	-50,00,000	-	4,08,52,644	85,79,055	3,22,73,588	0.3606	1,16,38,180
Year 10	5,42,96,488	-	50,00,000	-59,75,463	-50,00,000	-	4,83,21,025	1,01,47,415	3,81,73,610	0.3220	1,22,90,881
	Increased by 5% annually	10% of cost of equipment	Increased by 2%						NPV	2,18,63,640

Total Income is in Column F.

Cashflows are in Column H.

NPV = 21,863,640

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