Outdoor sports is considering adding miniature golf course. The course would cos

Question

Outdoor sports is considering adding miniature golf course. The course would cost $138000, would be deprecdiated on a straight line basis over 5 year life, have zero salvage value. Estimated income from fees is $72000 a year with $24000 of that amount being variable cost. The fised cost is $11600. In addition, they anticipate additional $14000 in revenue from existing facilities. Project will require $3000 of Net working capital, which is recoverable at end of project. What is the NPV of this project at a discount rate of 12% anmd tax rate of 34%.
a. 22,309
b. $11,628
c. $12,737
d. $14,439
e. $14,901

Explanation / Answer

Annual Depre = 138000/5 = 27600
Cash flow year 0 = -CapEx-NWC = -138000-3000 = -141000
Cash flow year 1,2,3,4 = (Revenue-FC-VC-Depre)(1-tax)+Depre

=(72000+14000-24000-11600-27600)(1-0.34)+27600= 42648

Cash flow year 5 = 42648 + recouped NWC = 45648

NPV = -141000+42648/1.12+42648/1.122+42648/1.123+42648/1.124+45648/1.125

NPV = 14439

Answer is D

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