Can Someone please help me to solve it? Gaston Company is considering a capital
ID: 2577621 • Letter: C
Question
Can Someone please help me to solve it?
Gaston Company is considering a capital budgeting project that would require a $2.000,000 investment in equipment with a useful life of five years and no salvage value The company's tax rate is 30% and its after tax cost of capital is 16%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows: Sales Variable expenses $3,200,000 1,870,000 1.330,000 Contribution margin Fixed expenses Adbvertisng salares, and other fred out-of pocket costs 400,000 Depreciation Total fixed expenses Net operating income 990,000 340,000 Click here to view Exhibit 138.1 and Exhibit 138-2 to determine the appropriate discount factofs) using tables Required: Compute the project's net present value (Round discount factorts) to 3 decimal places.) Net present valueExplanation / Answer
Net present Value 88,999.35 Statement showing Cash flows Particulars Time PVf 16% Amount PV Cash Outflows - 1.00 (2,000,000.00) (2,000,000.00) PV of Cash outflows = PVCO (2,000,000.00) Cash inflows 1.00 0.8621 638,000.00 550,000.00 Cash inflows 2.00 0.7432 638,000.00 474,137.93 Cash inflows 3.00 0.6407 638,000.00 408,739.60 Cash inflows 4.00 0.5523 638,000.00 352,361.72 Cash inflows 5.00 0.4761 638,000.00 303,760.10 PV of Cash Inflows =PVCI 2,088,999.35 NPV= PVCI - PVCO 88,999.35 Net operating Income 340,000.00 Less Tax at 30% (102,000.00) Income after tax 238,000.00 Add Depreciation 400,000.00 Cash flow after tax 638,000.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.