Delia Landscaping is considering a new 4-year project. The necessary fixed asset

Question

Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $189,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $126,000, variable costs of $33,700, and fixed costs of $12,700. The project will also require net working capital of $3,300 that will be returned at the end of the project. The company has a tax rate of 35 percent and the project's required return is 9 percent. What is the net present value of this project?

Explanation / Answer

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A B C D E 1 Year 0 1 2 3 4 2 Fixed assets cost 189000 3 Net Working Capital 3300 4 Annual Sales 126000 126000 126000 126000 5 Variable Costs 33700 33700 33700 33700 6 Fixed Costs 12700 12700 12700 12700 7 Depreciation Rate 33.33% 44.45% 14.81% 7.41% 8 Depreciation = Dep rate * Fixed Asset cost 62993.70 84010.50 27990.90 14004.90 9 EBIT= Annual Sales-Variable Costs- Fixed Costs- Depreciation 16606.30 -4410.50 51609.10 65595.10 10 Tax = EBIT*Tax rate 5812.205 -1543.675 18063.19 22958.29 11 EAT = EBIT - Tax 10794.10 -2866.83 33545.92 42636.82 12 Add depereciation 62993.70 84010.50 27990.90 14004.90 13 Add net working capital 3300 14 FCFF -192300 73787.80 81143.68 61536.82 59941.72 15 Rate 9% NPV $33,674.17 Using Excel formula = NPV(A15,B14:E14)+A14

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