Tom Morrison Inc., a leading manufacturer of golf equipment, is currently evalua

Question

Tom Morrison Inc., a leading manufacturer of golf equipment, is currently evaluating a new golf ball called the "Feathery". The secret to the Feathery is that its core is made from goose down. The advantage of down is that the ball flies higher and longer. You have completed an analysis of the Feathery project and estimated the NPV to be $148,643. After completing your analysis, your boss tells you that the Feathery project will occupy an unused portion of the Morrison plant and that Morrison could have leased the space to another user for $15,000 per annum for two years. Assume a tax rate of 30% and a cost of capital of 10%. What is the NPV of the project with this fact included? A. $128.229 B. $130,420 C. $127,643 D. $118,643 E. Doesn't affect NPV of this project

Explanation / Answer

year lease rentals tax 30% after tax lease rentals present value@10% 1 15000 4500 10500 9545.455 2 15000 4500 10500 8677.686 present value of lease 18223.14 npv of the feathry ball 148643 present value of leased 18223.14 npv of the feathry ball 130419.9

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