Question
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year Unit
The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25.
Year | Unit Sales |
---|---|
1 | 22,000 |
2 | 30,000 |
3 | 14,000 |
4 | 5,000 |
Thereafter | 0 |
It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year 0) investment in working capital of 0.20 22,000 $40 = $176,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $200,000. This investment will be depreciated straight-line over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firms tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule.
a. What is the net present value of the project?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
b. By how much does NPV increase if the firm takes immediate 100% bonus depreciation?
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