Exercise 13C-2 Income Taxes and Net Present Value Analysis [LO13-8]

Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $150,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product:

Annual revenues and costs:
Sales revenues	$	370,000
Variable expenses	$	205,000
Fixed out-of-pocket operating costs	$	87,000

The companys tax rate is 35% and its after-tax cost of capital is 18%.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

Calculate the net present value of this investment opportunity. (Round discount factor(s) to 3 decimal places.)