Question
P12-51 Quixotic Enterprises Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the viability of
P12-51 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 $430,000 and will last 11 years, at which time they will have an estimated salvage value of $26,000. However, a capital upgrade of $110,000 will be required at the end of five years. An inventory of spare parts (working capital) amounting to $9,000 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 Quixotics previous ventures. The warehouse could be rented out at $4,000 per year.
This enterprise is expected to generate cash from the sale of electricity of $156,000 a year for 11 years. Cash expenses for each of the 11 years will be $12,000.
The companys tax rate is 24 percent, the CCA rate is 9 percent and the cost of capital is 25 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 | |||
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? (Click to select) No Yes
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