RocketOwl, Inc. is considering a new product to bring to market. They estimate the product would have a viable market for five years. If they wish to do the project they will need to purchase equipment with a price of $2,287,521. The firm will use straight-line depreciation to a value of $500,000 and assume the equipment will have a pre-tax salvage value of $469,308. They estimate revenue and costs for the project as presented in the table: Operating Year 1 2 3 4 5 Revenue $371,693 $861,893 $2,627,053 $1,047,316 $371,693 Costs $70,569 $330,987 $981,954 $246,165 $70,569 RocketOwl, Inc. expects the project will need initial inventory for the projec of $107,528, and this amount will stay constant throughout the project. They also expect in the investment year the project will generate accounts receivable of $65,878 and accounts payable of $35,758. They also assume that the project will generate accounts payable each year equal to 0.19 of annual sales and accounts payable equal to 0.06 of annual costs. The firm's average tax rate is 0.34. If the firm's WACC is equal to 12.8%, what is the NPV of the project? (Make sure you enter the number with the appropriate +/- sign)
RocketOwl, Inc. is considering a new product to bring to market. They estimate the product would have a viable market for five years. If they wish to do the project they will need to purchase equipment with a price of $2,287,521. The firm will use straight-line depreciation to a value of $500,000 and assume the equipment will have a pre-tax salvage value of $469,308. They estimate revenue and costs for the project as presented in the table: Operating Year 1 2 3 4 5 Revenue $371,693 $861,893 $2,627,053 $1,047,316 $371,693 Costs $70,569 $330,987 $981,954 $246,165 $70,569 RocketOwl, Inc. expects the project will need initial inventory for the projec of $107,528, and this amount will stay constant throughout the project. They also expect in the investment year the project will generate accounts receivable of $65,878 and accounts payable of $35,758. They also assume that the project will generate accounts payable each year equal to 0.19 of annual sales and accounts payable equal to 0.06 of annual costs. The firm's average tax rate is 0.34. If the firm's WACC is equal to 12.8%, what is the NPV of the project? (Make sure you enter the number with the appropriate +/- sign)
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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Transcribed Image Text:RocketOwl, Inc. is considering a new product to bring to market. They
estimate the product would have a viable market for five years. If they wish
to do the project they will need to purchase equipment with a price of
$2,287,521. The firm will use straight-line depreciation to a value of
$500,000 and assume the equipment will have a pre-tax salvage value of
$469,308. They estimate revenue and costs for the project as presented in
the table:
Operating Year
1
2
3
4
5
Revenue
$371,693
$861,893
$2,627,053
$1,047,316
$371,693
Costs
$70,569
$330,987
$981,954
$246,165
$70,569
RocketOwl, Inc. expects the project will need initial inventory for the project
of $107,528, and this amount will stay constant throughout the project.
They also expect in the investment year the project will generate accounts
receivable of $65,878 and accounts payable of $35,758. They also assume
that the project will generate accounts payable each year equal to 0.19 of
annual sales and accounts payable equal to 0.06 of annual costs. The firm's
average tax rate is 0.34. If the firm's WACC is equal to 12.8%, what is the
NPV of the project?
(Make sure you enter the number with the appropriate +/- sign)
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