6.1 Calculating Project NPV Paul Restaurant is considering the purchase of a $9,300 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,400 soufflés per year, with each costing $1.97 to make and priced at $4.95. The discount rate is 14 percent and the tax rate is 21 percent. Should the company make the purchase?
6.1 Calculating Project NPV Paul Restaurant is considering the purchase of a $9,300 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,400 soufflés per year, with each costing $1.97 to make and priced at $4.95. The discount rate is 14 percent and the tax rate is 21 percent. Should the company make the purchase?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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6.1 Calculating Project
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Step 1
| Amount ($) | |
| Revenue of 1400 souffles | 6,930 |
| Less: Cost of 1400 souffles | (2,758) |
| Less: Depreciation | (1,860) |
| EBT | 2,312 |
| Less: Tax @21% | 485.52 |
| EAT | 1,826.48 |
| Add: Depreciation | 1,860 |
| Annual Cash Inflow | 3,686.48 |
| PVAF (14%, 5 years) | 3.4331 |
| PV of Cash Inflows | 12,656.05 |
| Less: PV of Cash Outflow | 9,300 |
| NPV | 3,356.05 |
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