You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ),

Question

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.44 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1,540,000 on an aftertax basis. In four years, the land could be sold for $1,640,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $129,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 4,200, 5,100, 5,700, and 4,600 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $690 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. PUTZ feels that fixed costs for the project will be $445,000 per year, and variable costs are 10 percent of sales. The equipment necessary for production will cost $3.9 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $420,000. Net working capital of $129,000 will be required immediately and will be recaptured at the end of the project. PUTZ has a 40 percent tax rate, and the required return on the project is 14 percent. Assume the company has other profitable projects. Table 8.3. What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)

I had worked it out to be 9490327.68, which came up incorrect. I worked through it as the book told me to. Please walk me through step by step to see where I went wrong thank you very much!

Explanation / Answer

Therfore the NPV is  4,489,405.19

Machine cost 3900000 33.33% 44.45% 14.81% 7.41% Depreciation 1299870 1733550 577590 288990 Machine selling price 420000 Tax 168000 After tax cost 252000 Units Sold 4200 5100 5700 4600 Price 690 690 690 690 Sales 2898000 3519000 3933000 3174000 Fixed cost 445000 445000 445000 445000 Variable Cost 289800 351900 393300 317400 Depreciation Machine 1299870 1733550 577590 288990 Operating Income 863330 988550 2517110 2122610 Tax 345332 395420 1006844 849044 Post tax Income 517998 593130 1510266 1273566 Cashflows Investment in land -1540000 Marketing Cost -129000 Sellling Price of land 1640000 Net workig capital -129000 Release of working capital 129000 Operating Cahflows 1817868 2326680 2087856 1562556 Cashflows from sale of machine 252000 4,489,405.19 -1798000 1817868 2326680 2087856 3583556

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