Calculate the net present value (NPV) of the investment Purchase Price -$449,900.00 Initial Cost -$11,468.00 Investment in
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Question:
Calculate the net present value (NPV) of the investment
| Purchase Price | -$449,900.00 |
| Initial Cost | -$11,468.00 |
| Investment in NWC | -$3,220.00 |
| After-Tax SV | |
| Initial Outlay | -$464,588.00 |
| Project Life | 10 | Tax Rate | |
Rate for Single Earning $207,350 a year | |||
| Initial Outlay from Q2 | -$464,588.00 | 35.00% | |
| Annual Operating Cash Flow | (Sales-Cost) x (1-tax rate) + (depreciation) x (tax rate) | ||
| Annual Rent | $19,320.00 | ||
| Expenses | $16,321.15 | ||
| Depreciation | $16,360.00 | ||
| Taxes Rate | 0.35 | ||
| Annual Operating Cash Flow (Year 1 - 10) | $7,675.25 | ||
| Question 4 | (0.5 point). Calculate the terminal cash flow in yr 10 your answers from Q1. | ||
| After Tax Savage Value | SV - t*(SV - BV) | ||
| Savage Value | $494,900.00 | ||
| Tax Rate | 35.00% | ||
| Accumulated Depreciation | |||
| Depreciation Expense | $16,360.00 | ||
| # of Years of Project | 10 | ||
| Accumulated Depreciation Total | $163,600.00 | ||
| BV | |||
| Depreciable Asset (Purchase Price+Inital Cost) | -$461,368.00 | ||
| Accumulated Depreciation | $163,600.00 | ||
| BV Total | -$624,968.00 | ||
| After Tax Savage Value | $102,946.20 | ||
| Terminal Cash Flow | |||
| Recovery of NMW from Q2 | $3,220.00 | ||
| After-Tax Savage Value | $102,946.20 | ||
| Terminal CF | $106,166.20 | ||
| Year | Amount | ||
| 0 | -$464,588 | ||
| 1 | $7,675.25 | ||
| 2 | $7,675.25 | ||
| 3 | $7,675.25 | ||
| 4 | $7,675.25 | ||
| 5 | $7,675.25 | ||
| 6 | $7,675.25 | ||
| 7 | $7,675.25 | ||
| 8 | $7,675.25 | ||
| 9 | $7,675.25 | ||
| 10 | $113,841.45 |
| WACC = | Wd Rd (1-T) + We Re | ||
| Wd = | Weight on debt securities | ||
| Rd = | Cost of Debt (=borrowing rate) | ||
| T | Corporate Tax Rate | ||
| We = | Weight on equity securities | ||
| Re = | Cost of Equity (=expected Return) | ||
| Wd = | 70% | ||
| Rd = | 3.82% | ||
| T | 35% | ||
| We = | 30% | ||
| Re = | 7% | ||
| WACC |
Expert Answer:
Solution To calculate the net present value NPV of the investment we need to calculate the present value of the initial outlay the annual operating ca... View the full answer
Related Book For 
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
