What is the NPV of Bobs project if it has 6-year project to produce saddles. Bob's project
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Question:
What is the NPV of Bobs project if it has 6-year project to produce saddles. Bob's project cost $1.31 million and will be depreciated using straight-line depreciation to a book value of zero. The projects salvage value is 10% of its initial cost. Bobs projects that it can sell 24,000 saddles per year at a price of $65 and variable costs of $25 per saddle. the fixed costs will be $405,000per year and an initial investment in net working capital of $197,000 is required that will be recovered when Bobs project is dismantled. Assume that the cost of capital is 10.8 percent and the tax rate is 40 percent.
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