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What is the net present value of the project? (Round your answer to the nearest whole dollar amount.)

What is the net present value of the project? (Round your answer to the nearest whole dollar amount.)

Essentials Of Investments
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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The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $30. The unit cost of the giftware is $25. Year Unit Sales 20, 000 2. 31, 200 14, 900 5, 700 Thereafter It is expected that net working capital will amount to 25% of sales in the following year. For example, the store will need an initial (year 0) investment in working capital of 0.25 x 20,000 x $30 = $150,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $197,000. This investment will be depreciated in an asset class with a CCA rate of 25%. We will assume that the firm has other assets in this asset class. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 35%. The discount rate is 10%. What is the net present value of the project? (Round your answer to the nearest whole dollar amount.) NPV $
Transcribed Image Text:The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $30. The unit cost of the giftware is $25. Year Unit Sales 20, 000 2. 31, 200 14, 900 5, 700 Thereafter It is expected that net working capital will amount to 25% of sales in the following year. For example, the store will need an initial (year 0) investment in working capital of 0.25 x 20,000 x $30 = $150,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $197,000. This investment will be depreciated in an asset class with a CCA rate of 25%. We will assume that the firm has other assets in this asset class. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 35%. The discount rate is 10%. What is the net present value of the project? (Round your answer to the nearest whole dollar amount.) NPV $
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