Golden Gate Windsurfing Inc. is considering a project to expand its current operation. Given the following information
Question:
Golden Gate Windsurfing Inc. is considering a project to expand its current operation. Given the following information and assuming straight-line depreciation to zero:
What is the net present value of this project?
Should Golden Gate Windsurfing Inc. accept the project and why?
• Market research study = $15,000
• Project life = 5 years
• Initial investment on fixed assets = $320,000; the fixed assets will be sold for $30,000 at the end of year 5.
• Initial working capital = $25,000 (the money will be recovered on closure of the project)
• Operating income = (sales – costs) = $150,000 per year;
• Losses in current sales if proceed the project: $20,000 in year 1 and $16,000 in year 2.
• Corporate tax rate = 25%
• Discount rate 13.45%
Fundamental financial accounting concepts
ISBN: 978-0078025365
8th edition
Authors: Thomas P. Edmonds, Frances M. Mcnair, Philip R. Olds, Edward