Gaston Company is considering a capital budgeting project that would require a $

Question

Gaston Company is considering a capital budgeting project that would require a $2,900,000 investment in equipment with a useful life of five years and no salvage value. The company’s tax rate is 30% and its after-tax cost of capital is 13%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows: Sales $ 3,300,000 Variable expenses 1,570,000 Contribution margin 1,730,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 670,000 Depreciation 580,000 Total fixed expenses 1,250,000 Net operating income $ 480,000

Question:Net present vaule?

Explanation / Answer

Net Income            4,80,000 Tax            1,44,000 Net Income after tax            3,36,000 Depreciation            5,80,000 Annual Cash Inflow            9,16,000 PVIFA @13% for 5 years                3.5172 PV of Annual Cash Inflows          32,21,784 Initial Investment          29,00,000 Net Present Value            3,21,784

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.