Question
Sway's Back Store is considering a project which will require the purchase of $1 million in new equipment. The equipment will be depreciated straight-line to
Sway's Back Store is considering a project which will require the purchase of $1 million in new equipment. The equipment will be depreciated straight-line to $200,000 over the 5-year life of the project. The first-year sale from this project is estimated at $800,000, then it keeps growing at a 5% rate. The variable cost is always 50% of the annual sales and there is an annual fixed cost of $100,000. Sway's Back Store will sell the equipment at the end of the project at a market value of $240,000. The net working capital for the project equals to 10% of sales across years. All of the net working capital will be recouped at the end of the project. The firm desires a minimal 10% rate of return on this project. The tax rate is 40%. Please calculate the NPV for this project
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started