Question
Hothan Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment $240,000 Expected life of project 4 Salvage value of
Hothan Corporation has provided the following information concerning a capital budgeting project:
Investment required in equipment $240,000
Expected life of project 4
Salvage value of equipment $0
Working capital requirement $20,000
Annual sales $510,000
Annual cash operating expenses $380,000
The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation. The depreciation expense will be $60,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax rate is 30% and the after-tax discount rate is 15%. Required: Determine the net present value of the project. Show your work!
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