Lakeside Grapes is considering expanding its wine-making operations. They would

Question

Lakeside Grapes is considering expanding its wine-making operations. They would need new equipment that costs $374 thousand that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated pre-tax salvage value is $67 thousand. The project requires $36 thousand initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $217 thousand a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 36 percent? (Enter answer in thousands.)

Explanation / Answer

Hi, NPV would be calculated as follows: = -374 - 36 + 217/(1+.13)^1 + 217/(1+.13)^2 + 217/(1+.13)^3 + 217/(1+.13)^4 + 217/(1+.13)^5 + 67*(1-.36)/(1+.13)^5 + 36/(1+.13)^5 = 396.05 or 396000 Thanks, Aman

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