Adequate information: Number of units sold for Year 1 = 7,100 Number of units sold for Year 2 = 7,900 Number of units sold for Year 3 = 9,200 Number of units sold for Year 4 = 6,100 Price per unit = $305 Variable costs are 15% of sales Fixed cost = $375,000 Land for Year 0 = $900,000 Land for Year 4 = 1,200,000 Pre-tax salvage value = $310,000 Cost of equipment = $3,400,000 Net working capital = $225,000 Tax rate = 23% or 0.23 Required return on the project, r = 13% or 0.13 To compute: Net present value (NPV) of the project Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow .

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Chapter 6, Problem 28QAP

Summary Introduction

Adequate information:

Number of units sold for Year 1 = 7,100

Number of units sold for Year 2 = 7,900

Number of units sold for Year 3 = 9,200

Number of units sold for Year 4 = 6,100

Price per unit = $305

Variable costs are 15% of sales

Fixed cost = $375,000

Land for Year 0 = $900,000

Land for Year 4 = 1,200,000

Pre-tax salvage value = $310,000

Cost of equipment = $3,400,000

Net working capital = $225,000

Tax rate = 23% or 0.23

Required return on the project, r = 13% or 0.13

To compute: Net present value (NPV) of the project

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

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