Timco is considering the construction of a new retail outlet. The construction cost will be 400000. Net working capital will increase by 10000. The depreciation is 10 year MACRS. The new location will increase sales by 90000 and increase costs by 40000 per year. The tax rate is 40%. Assume we can sell the location for 50000 at the end of the tenth year. The WACC is 8%. Find the NPV. Should we buy it? Year zero cash outflow is 400000 (purchase) +10000 (NWC) =410000. Using the MACRS table, depreciation by year is 40000, 72000, 57600, 46080, 36880, 29480, 26200, 26200, 26240, 26200, 13120. 13120 is remaining book value

Year Zero: (410000) Years One through Nine: (?S-?C)*(1-t) +?D*t. This is the after tax operating cash flow and the depreciation tax shield.

Year One: (90000-40000)*(.6) + 40000*.4 = 30000 + 16000 = 46000

Year Two: (90000-40000)*(.6)+ 72000*.4 = 30000 + 28800 = 58800

Year Three: (90000-40000)*(.6)+ 57600*.4= 30000 + 23040 = 53040

Year Four: (90000-40000)*(.6)+ 46080*.4= 30000 + 18432 = 48432

Year Five: (90000-40000)*(.6)+ 36880*.4= 30000 + 14752 = 44752

Year Six: (90000-40000)*(.6)+ 29480*.4= 30000 + 11792 = 41792

Year Seven: (90000-40000)*(.6)+ 26200*.4= 30000 + 10480 = 40480

Year Eight: (90000-40000)*(.6)+ 26200*.4= 30000 + 10480 = 40480

Year Nine: (90000-40000)*(.6)+ 26240*.4= 30000 + 10496 = 40496

In Year Ten we get the operating flow and the tax shield, plus we sell off what we can from the assets and recover our net working capital.

Year Ten: 30000 + 10480 + [(50000-13120)*.6 + 13120] + 10000 = 30000 + 10480 + 35248 + 10000 = 85728. The NPV is (77042.04), so we should not open the new store. To get to an NPV of zero, we would have to raise the net cash inflow by 11481.54 per year or reduce the year zero cash flow by 77042.

WHERE IS THE NPV OF (77042.04) COMING FROM? WHAT CASH FLOWS SHOULD I USE TO FIND IT?