You have been hired as a consultant for Pristine Urban Tech Zither, Inc (PUTZ), manufacturers of fine zithers The market for zithers is growing quickly The company bought some land three years ago for $1 39 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials Based on a recent appraisal, the company believes it could sell the land for $1,490,000 on an aftertax basis At the end of the project, the land could be sold for $1,590,000 on an aftertax basis The company also hired a marketing firm to analyze the zither market, at a cost of $124,000 An excerpt of the marketing report is as follows The zither industry will have a rapid expansion in the next four years With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,700, 4,600, 5,200, and 4,100 units each year for the next four years, respectively Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $640 can be charged for each zither Since zithers appear to be a fad, we feel at the end of the four year period, sales should be discontinued PUTZ feels that fixed costs for the project will be $420,000 per year and variable costs are 20 percent of sales The equipment necessary for production will cost $3 4 million and will be depreciated according to a three year MACRS schedule At the end of the project, the equipment can be scrapped for $395,000 Net working capital of $124,000 will be required immediately and will be recaptured at the end of the project PUTZ has a 21 percent tax rate and the required return on the project is 12 percent Refer to Table 8 3 What is the NPV of the project Depreciation under Modified Accelerated Cost Recovery System (MACRS) YEAR 3 YEARS 1 2 3 3333 4445 1481 0741 4 RECOVERY PERIOD CLASS 5 YEARS 7 YEARS 10 YEARS 2000 1429 1000 3200 2449 1800 1920 1749 1440 1152 1249 1152 1152 0893 0922 0576 0892 0737 0893 0655 0446 0655 0656 0655 0328 5 6 7 15 YEARS 0500 0950 0855 0770 0693 0623 0590 0590 0591 0590 0591 0590 0591 0590 0591 0295 8 9 10 20 YEARS 03750 07219 06677 06177 05713 05285 04888 04522 04462 04461 04462 04461 04462 04461 04462 04461 04462 04461 04462 04461 02231 11 12 13 14 15 16 17 18 19 20 21 Depreciation is expressed as a percent of the asset's cost These schedules are based on the IRS publication 946 How to Depreciate Property and other details on depreciation are presented later in the chapter Note that five year depreciation actually carries over six years because the IRS assumes purchase is made in midyear

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You have been hired as a consultant for Pristine Urban Tech Zither, Inc  (PUTZ), manufacturers of fine zithers  The market for zithers is growing quickly  The company bought some land three years ago for $1 39 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials  Based on a recent appraisal, the company believes it could sell the land for $1,490,000 on an aftertax basis  At the end of the project, the land could be sold for $1,590,000 on an aftertax basis  The company also hired a marketing firm to analyze the zither market, at a cost of $124,000  An excerpt of the marketing report is as follows  The zither industry will have a rapid expansion in the next four years  With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,700, 4,600, 5,200, and 4,100 units each year for the next four years, respectively  Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $640 can be charged for each zither  Since zithers appear to be a fad, we feel at the end of the four year period, sales should be discontinued  PUTZ feels that fixed costs for the project will be $420,000 per year and variable costs are 20 percent of sales  The equipment necessary for production will cost $3 4 million and will be depreciated according to a three year MACRS schedule  At the end of the project, the equipment can be scrapped for $395,000  Net working capital of $124,000 will be required immediately and will be recaptured at the end of the project  PUTZ has a 21 percent tax rate and the required return on the project is 12 percent  Refer to Table 8 3  What is the NPV of the project  Depreciation under Modified Accelerated Cost Recovery System (MACRS) YEAR 3 YEARS 1 2 3  3333 4445 1481  0741 4 RECOVERY PERIOD CLASS 5 YEARS 7 YEARS 10 YEARS  2000  1429  1000  3200 2449  1800  1920  1749  1440  1152  1249  1152  1152  0893  0922  0576  0892  0737  0893  0655  0446  0655  0656  0655  0328 5 6 7 15 YEARS  0500  0950  0855  0770  0693  0623  0590  0590  0591  0590  0591  0590  0591  0590  0591  0295 8 9 10 20 YEARS  03750  07219  06677  06177  05713  05285  04888  04522  04462  04461  04462  04461  04462  04461  04462  04461  04462  04461  04462 04461  02231 11 12 13 14 15 16 17 18 19 20 21 Depreciation is expressed as a percent of the asset's cost  These schedules are based on the IRS publication 946  How to Depreciate Property and other details on depreciation are presented later in the chapter  Note that five year depreciation actually carries over six years because the IRS assumes purchase is made in midyear

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You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The

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