What is the net present value of the stadium project, which is a 3-year project

Question

What is the net present value of the stadium project, which is a 3-year project where Fairfax Pizza would sell pizza in the baseball stadium? The project would involve an initial investment in equipment of 140,000 dollars today. To finance the project, Fairfax Pizza would borrow 140,000 dollars. The firm would receive 140,000 dollars from the bank today and would pay the bank 179,200 dollars in 3 years (consisting of an interest payment of 39,200 dollars and a principal payment of 140,000 dollars). Cash flows from capital spending would be 0 dollars in year 1, 0 dollars in year 2, and 8,000 dollars in year 3. Operating cash flows are expected to be 84,000 dollars in year 1, 84,000 dollars in year 2, and -28,000 dollars in year 3. The cash flow effects from the change in net working capital are expected to be -18,000 dollars at time 0; 4,000 dollars in year 1; 2,000 dollars in year 2; and 12,000 dollars in year 3. The tax rate is 25 percent. The cost of capital is 7.29 percent and the interest rate on the loan would be 8.58 percent.

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Thank you for your time .. Can you please answer this one as well?

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 390,000 dollars that would be depreciated to 20,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 31,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 390,000 dollars. The firm would receive 390,000 dollars from the bank today and would pay the bank $0 in 1 year and 432,900 dollars in 2 years (consisting of an interest payment of 42,900 dollars and a principal payment of 390,000 dollars). Relevant annual revenues are expected to be 367,000 dollars in year 1 and 357,000 dollars in year 2. Relevant annual costs are expected to be 79,000 dollars in year 1 and 83,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 6.57 percent and the interest rate on the loan would be 3.32 percent. What is the net present value of the project?

EDIT: In response to the comment, no they are two different questions.

Explanation / Answer

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Cash Flows 0 1 2 3 Cost of Equipment -140000 Amount Borrowed 140000 Capital spanding 0 -8000 Operating Cash Flows 0 84000 84000 -28000 Change in WC -18000 4000 2000 12000 Loan repayment 0 -179200 Net Cash Flows -18000 88000 86000 -203200 PV Factors @ 7.29% 1 0.932053313 0.868723 0.809697 Pv Of cash flows -18000 82020.69158 74710.21 -164530 NPV -25799.4 Cash Flows 0 1 2 Cost of Equipment -390000 Amount Borrowed 390000 Capital spanding 0 -31000 Operating Cash Flows Revanue 367000 357000 cost 79000 83000 Depreciation 185000 185000 Interest 12948 29952 Net income 90052 59048 Less: Tax 50% 45026 29524 EAT 45026 29524 Add: Non Cash Expense Depreciation 185000 185000 Interest 12948 29952 (Will Take in total repayment amount) OCF 0 242974 244476 Loan repayment -432900 Net Cash Flows 0 242974 -219424 PV Factors @ 6.57% 1 0.93835038 0.880501 Pv Of cash flows 0 227994.7452 -193203 NPV 34791.6

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