TLC Yogurt Company is renting additional space for an exercise facility. The equipment will cost $50,000 with shipping and installation cost of $5,000. The equipment will be depreciated using straight-line depreciation over 5 years with a salvage value of 0. In order to open the facility, the company estimates it will have to add an additional $7,000 in net working capital in the form of exercise inventory supplies, cash and accounts receivable.

During the first year of operations, TLC expects revenues from yogurt sales and exercise services to increase by $50,000. The estimated revenues for years 2-5 are $60,000, $75,000, $60,000 and $45,000. The additional operation costs associated with the project including rental of the facility are expected to be $25,000 during the first year and increase at a rate of 6% per year over the 5 year project. TLC has a marginal tax rate of 40%. TLC expects it will have to add net working capital of $5,000 per year for years 1, 2 and 3 only. At the end of the project, this additional NWC will be recovered.

Calculate the Net Investment (Cost) 1 pt

Cost of equipment _________________

Plus Shipping and Installation _________________

Plus Initial net working capital required _________________

= Net Investment _________________

(Note: no asset is being sold so we can skip figuring out the proceeds and tax consequences of selling existing assets)

Calculate the Annual Net Cash Flows (NCF) 1 pt per column

Hint the NCF in year 0 is the net investment from above, make sure you enter it as a negative number because it is a negative to cash flow, not all boxes may be filled in

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Rev
- Oper. Costs
- Dep
= OEBT
- Taxes
= OEAT
+ Dep
- NWC
+ After Tax Salvage
= NCF

How would you find the present value of this project? 1 pt