The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.27 Million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 23,000 tents per year at a price of $63 and variable costs of $24 per tent. The fixed costs will be $385,000 per year. The project will require an initial investment in net working capital of $189,000 that will be recovered at the end of the project. The required rate of return is 10.6 percent and the tax rate is 21 percent. What is the NPV?
The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.27 Million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 23,000 tents per year at a price of $63 and variable costs of $24 per tent. The fixed costs will be $385,000 per year. The project will require an initial investment in net working capital of $189,000 that will be recovered at the end of the project. The required rate of return is 10.6 percent and the tax rate is 21 percent. What is the NPV?
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
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Transcribed Image Text:The Bruin's Den Outdoor Gear is
considering a new 6-year project
to produce a new tent line. The
equipment necessary would cost
$1.27 Million and be depreciated
using straight-line depreciation to
a book value of zero. At the end
of the project, the equipment can
be sold for 10 percent of its initial
cost. The company believes that
it can sell 23,000 tents per year
at a price of $63 and variable
costs of $24 per tent. The fixed
costs will be $385,000 per year.
The project will require an initial
investment in net working capital
of $189,000 that will be recovered
at the end of the project.
The required rate of return is
10.6 percent and the tax rate is
21 percent. What is the NPV?
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