Question

5) Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $675,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a salvage value of $181,000 at the end of the project. The project requires 551,000 initially for networking capital, which will be recovered at the end of the project. The operating cash flow will be $187.600 a year What is the net present value of this project if the relevant discount rate is 15 percent and the tax rate is 35 percent? A)-S16,959 B)-$14,173 C) -$15,747 D-513.287 E) -$11.958 4) The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.37 million and be depreciated using straight line depreciation to a book value of zero. At the end of the project, the equipment will have a salvage value of 205.500. The company believes that it can sell 25,500 tents per year at a price of 568 and variable costs of $28 per tent. The fixed costs will be $435,000 per year. The project will require an initial investment is net working capital of $209,000 that will be recovered at the end of the project. The required rate of return is 11.1 percent and the tax rate is 40 percent. What is the NPV? A) 5463.633 B) 5561.495 C) 5968,299 D) 5660,397 E) S402.552

Answer 1

1.
=-675000+181000*(1-35%)/1.15^5-51000+51000/1.15^5+187600/15%*(1-1/1.15^5)
=-13286.85

2.
=-1.37*10^6+205500*(1-40%)/1.111^6-209000+209000/1.111^6+((25500*(68-28)-435000-1.37*10^6/6)*(1-40%)+1.37*10^6/6)/11.1%*(1-1/1.111^6)=463633.304185007