Question
Calculate the net present value (NPV) of the investment Purchase Price -$449,900.00 Initial Cost -$11,468.00 Investment in NWC -$3,220.00 After-Tax SV Initial Outlay -$464,588.00 Project
Calculate the net present value (NPV) of the investment
| Purchase Price | -$449,900.00 |
| Initial Cost | -$11,468.00 |
| Investment in NWC | -$3,220.00 |
| After-Tax SV | |
| Initial Outlay | -$464,588.00 |
| Project Life | 10 | Tax Rate | |
Rate for Single Earning $207,350 a year | |||
| Initial Outlay from Q2 | -$464,588.00 | 35.00% | |
| Annual Operating Cash Flow | (Sales-Cost) x (1-tax rate) + (depreciation) x (tax rate) | ||
| Annual Rent | $19,320.00 | ||
| Expenses | $16,321.15 | ||
| Depreciation | $16,360.00 | ||
| Taxes Rate | 0.35 | ||
| Annual Operating Cash Flow (Year 1 - 10) | $7,675.25 | ||
| Question 4 | (0.5 point). Calculate the terminal cash flow in yr 10 your answers from Q1. | ||
| After Tax Savage Value | SV - t*(SV - BV) | ||
| Savage Value | $494,900.00 | ||
| Tax Rate | 35.00% | ||
| Accumulated Depreciation | |||
| Depreciation Expense | $16,360.00 | ||
| # of Years of Project | 10 | ||
| Accumulated Depreciation Total | $163,600.00 | ||
| BV | |||
| Depreciable Asset (Purchase Price+Inital Cost) | -$461,368.00 | ||
| Accumulated Depreciation | $163,600.00 | ||
| BV Total | -$624,968.00 | ||
| After Tax Savage Value | $102,946.20 | ||
| Terminal Cash Flow | |||
| Recovery of NMW from Q2 | $3,220.00 | ||
| After-Tax Savage Value | $102,946.20 | ||
| Terminal CF | $106,166.20 | ||
| Year | Amount | ||
| 0 | -$464,588 | ||
| 1 | $7,675.25 | ||
| 2 | $7,675.25 | ||
| 3 | $7,675.25 | ||
| 4 | $7,675.25 | ||
| 5 | $7,675.25 | ||
| 6 | $7,675.25 | ||
| 7 | $7,675.25 | ||
| 8 | $7,675.25 | ||
| 9 | $7,675.25 | ||
| 10 | $113,841.45 |
| WACC = | Wd Rd (1-T) + We Re | ||
| Wd = | Weight on debt securities | ||
| Rd = | Cost of Debt (=borrowing rate) | ||
| T | Corporate Tax Rate | ||
| We = | Weight on equity securities | ||
| Re = | Cost of Equity (=expected Return) | ||
| Wd = | 70% | ||
| Rd = | 3.82% | ||
| T | 35% | ||
| We = | 30% | ||
| Re = | 7% | ||
| WACC |
Step by Step Solution
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Solution To calculate the net present value NPV of the investment we need to calculate the present value of the initial outlay the annual operating ca...
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Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
13th International Edition
1265533199, 978-1265533199
