Bill plans to quit his current job to open a do-it-yourself dog bathing center for 5 years. The bathing equipment will cost $160,000. Bill has already spent $3,000 in researching the project. He expects the operating revenue to be $130,000 per year and the operating expense to be $20,000 per year. After 5 years, he can sell the equipment in the market for $5,000. The center will need a constant level of $2,000 net working capital over its 5-year life. Bill will use straight-line depreciation for tax purposes and will depreciate the equipment toward zero over the 5 years. Interest expense is 8,000 per year. Bill’s salary from his current job is a constant $50,000 (after taxes) every year. If Bill takes on the bathing center project, he has to quit his current job. The tax rate is 40% and the discount rate is 12%.

Estimate the project’s cash flows. 

What is the NPV of this project? 

Should Bill quit his job and take the project?

Answer rating: 100% (QA)

To estimate the projects cash flows we need to calculate the net cash flow for each year Lets break it down 1 Initial Investment Equipment cost 160000 ... View the full answer