Hothan Corporation has provided the following information concerning a capital b
ID: 2490552 • Letter: H
Question
Hothan Corporation has provided the following information concerning a capital budgeting project:
The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation. The depreciation expense will be $60,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The income tax rate is 30% and the after-tax discount rate is 15%. Required: Determine the net present value of the project. Show your work!
Explanation / Answer
Year Annual sales S Annual cash opearting expenses C Depreciation D Income Before tax S-C-D Income Tax @30% Income After Tax Add: depreciation Net Cash Flows Discount Factor @15% Discounted Cash Flows 0 -240000 1 -240000 0 -20000 1 -20000 1 510000 380000 60000 70000 21000 49000 60000 109000 0.8696 94786.4 2 510000 380000 60000 70000 21000 49000 60000 109000 0.7562 82422.96 3 510000 380000 60000 70000 21000 49000 60000 109000 0.6575 71672.14 4 510000 380000 60000 70000 21000 49000 60000 109000 0.5718 62323.6 NPV 51205.09 rounded off NPV 51205
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