$10$

Problem $6-28$ Calculating Project NPV

$0\mathrm{.}9$

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Deferences

You have been hired as a consumant for Pristine Ulban$-$Tech Zethec, incorporated PUTZ.$),$ manufacturers of Ere zithers. The market for zithers is growing oulchly. The company bought some land three years ago for $$1,290,000$ in antlicipetion of uping it as a iovic waste dump site but has recently hired another compony to handie all tovic materials. Based on a recent appralsal, the compary believes it could sell the land for $$4500,000$ on an aftertax basis. In four years, the land could be sold for $$1\mathrm{.}500,000$ ather tases. The compary also hired a marketing firm to analyze the zither marketh at a cost of $tas $5\mathrm{.}000.$ 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 beac, we feel that the company will be able to sell $7,230,8,140,9,380,$ and $6,220$ units each year for the next four years, respectively. Again, capitalzing on the name recognition of PUIZ, we feel that a premium price of $$345$ can be charged for each zither. Because zithers appesr to be a fad, we feel at the end of the $4-$year period, sales should be discontinued.

PUTZ feels that freed costs for the project wall be $$400,000$ per yeac, and variable cosss are $15$ percent of sales. The equipment necessary for production will cost $$4,000,000$ and will be depreciated according $10$ a $3-$year MACR$5$ schedule. At the end of the project, the equipment can be scrapped for $$430,000.$ Net working capital of $$285,000$ will be required immediately. PUTZ has a tax rate of $22$ percent and the required return on the project is $15$ percent. $($MACRS schedule$)$

What is the NPV of the project? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$\mathrm{.}9-3.32\mathrm{.}16.)$

NPV