Lightning Bolt Inc. has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lightening estimated the following costs and revenues for the project: Cost of equipment $ 200,000 Working capital needed $50,000 Overhaul of the equipment in two years $20,000 Sales Revenue $ 280,000 Variable expenses $160,000 Fixed out-of- pocket operating costs $50,000 The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lightning uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 10%. When the project concludes in five years the working capital will be released for investment elsewhere within the company. Calculate the net present value of this investment opportunity.

Lightning Bolt Inc. has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lightening estimated the following costs and revenues for the project: Cost of equipment $ 200,000 Working capital needed $50,000 Overhaul of the equipment in two years $20,000 Sales Revenue $ 280,000 Variable expenses $160,000 Fixed out-of- pocket operating costs $50,000 The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lightning uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 10%. When the project concludes in five years the working capital will be released for investment elsewhere within the company. Calculate the net present value of this investment opportunity.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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