P$12-51$ Quixotic Enterprises

Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the viability of this venture after $31$ failures.

A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost $$412,000$ and will last $10$ years, at which time they will have an estimated salvage value of $$25,000.$ However, a capital upgrade of $$92,000$ will be required at the end of five years. An inventory of spare parts $($working capital$)$ amounting to $$10,000$ will be required during the term of the venture and will be housed in a warehouse that is currently not being used, but which has been used for Quixotic$$s previous ventures. The warehouse could be rented out at $$5,000$ per year.

This enterprise is expected to generate cash from the sale of electricity of $$140,000$ a year for $10$ years. Cash expenses for each of the $10$ years will be $$10,000.$

The company$$s tax rate is $27$ percent, the CCA rate is $8$ percent and the cost of capital is $19$ percent.

Requirements:

A$.$ Calculate the Net Present Value of the Windmill venture by completing the table below: $($You need a number for every cell in this spreadsheet.$)$

Event Expected Cash Flow After$-$tax Cash Flow Present Value

Enter cash receipts as positive numbers, cash payments as negative numbers. Round all your answers to zero decimal places.

Inital Investment

$-412000$

$-412000$

$-412000$

Working Capital

Revenues

Expenses

Opportunity Cost

Capital Upgrade

Salvage

Working Capital Revcovery

CCA Tax Shield N$/$A N$/$A

Net present value N$/$A N$/$A

B$.$ It's not worth any marks, but it helps with the marking: what number did you use for $($Cpv $-$ Spv$)?$

$($Enter your answer as a positive number.$)$

C$.$ Should Quixotic dream the impossible dream and invest in the Windmill venture?