Question
You, the newest summer intern a Goldman Sachs, are tasked to perform some capital budgeting analysis of a potential project at a pizza joint. The
You, the newest summer intern a Goldman Sachs, are tasked to perform some capital budgeting analysis of a potential project at a pizza joint. The project involves buying an Italian pizza oven that will cost $125,000. The project is expected to last for three years. The pizza joint has already spent $15,000 on designing the kitchen space. The building of the restaurant has been fully paid for a year ago at $350,000. The new pizza oven will generate revenues of $140,000 each year and the raw material cost will be 40% of sales. You plan to depreciate the pizza oven straight-line with a book value of $11,000 at the end of year three. At which time, you plan to sell the pizza oven for $15,000. Assuming the cost of capital is 14% and the tax rate is 35%, what is the NPV for this project? (Round your answer to the nearest dollar and show your justification in your work upload, no excel)
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