Question: An analyst has created estimates for a new Putt Putt course near the local elementary school. The course will require an investment (building and equipment)
An analyst has created estimates for a new Putt Putt course near the local elementary school. The course will require an investment (building and equipment) at year 0 of $166,994.00. This amount can be depreciated over 5 years using the straight-line approach. The building can be sold for an NSV of $42,903.00 in year 5. The entrepreneur needs help estimating the cash flows for the business.
| 0 | 1 | 2 | 3 | 4 | 5 | |
|---|---|---|---|---|---|---|
| Sales | $70,191.00 | $70,191.00 | $70,191.00 | $70,191.00 | $70,191.00 | |
| Expenses | $30,000.00 | $30,000.00 | $30,000.00 | $30,000.00 | $30,000.00 | |
| Depreciation | $33,398.80 | $33,398.80 | $33,398.80 | $33,398.80 | $33,398.80 | |
| Investment in NWC | $1,036.00 | $0 | $0 | $0 | $0 |
The investor wants an 9.00% return on the investment and the firm faces a 35.00% tax rate.
a) What is the project cash flow for year 1?
b) What is the project cash flow for year 2?
c) What is the NPV of this project?
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