SQLite Sports is considering adding a miniature golf course to its facility. The

Question

SQLite Sports is considering adding a miniature golf course to its facility. The course would cost $132,540, would be depreciated on a straight line basis over its 5-year life, and would have a zero salvage value. The estimated income from the golfing fees would be $76,417 a year with $20,373 of that amount being variable cost. The fixed cost would be $14,928. In addition, the firm anticipates an additional $12,578 in revenue from its existing facilities if the golf course is added. The project will require $3,124 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 8.1 percent and a tax rate of 37 percent?

Explanation / Answer

Hi, Annual Cash Flow : 76417 - 20373 - 14928 + 12578 = 53694*(1-.37) = 33827.22 NPV = - 132540 - 3124+ 33827.22/(1+.081)^1 + 33827.22/(1+.081)^2 + 33827.22/(1+.081)^3 + 33827.22/(1+.081)^4 + 33827.22/(1+.081)^5 + 3124/(1+.081)^5 = 1159.38 NPV = 1159.38 Thanks, Aman

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