Mr. Ahmad is considering a new investment and has made the following forecast of demand and cost:

a. Sales revenue for the first year will be $300,000 and will increase to $1000,000 the next year. Revenue will the grow by 10 % a year for the next four years, remain the same in the seventh year and then decline by 10 percent or the next 3 years, when the product will be terminated.

b. Cost of goods sold will be 50% of sales.

c. Advertising and general expenses will be $10,000 a year.

d. Working capital required is $250,000 and will be recouped at the end of project life.

e. Equipment will be purchased today for $ 1250,000 and will be depreciated over the 10-year project life using straight line method. Installation cost today will be $45,000 and this will be depreciated over five year, also on straight line basis. The equipment has $50,000 salvage value. Other initial costs, which will be expensed not depreciated are $975,000.

Find the net present value of the project using 10 percent cost of capital and 35% tax rate

select the corret answer

$5.15 million

$5.64 million

$5.24 million

$4.92 million

$5.84 million

$4.89 million

$5.80 million