Chapter 9 Homework asion 2 (of Save & Ext Suti 000 points Problem 9 20 Calculati

Question

Chapter 9 Homework asion 2 (of Save & Ext Suti 000 points Problem 9 20 Calculating Project Cash Flows and NPV ILO 21 Pappy's Polato has come up with a new product, the Polato Pet (they are treeze-dried to last konger) Peppy's paid $131,000 for a marketing survey to determne the viability of the product It is lell that Potato Pet well generata sales of $586 000 per year The fixed costs associated with this will be $190,000 per year, and variable costs will amount t0 21 percent of sales The equpment necessary for production of the Potato Pet MEl cost $642,000 and will be depreciated in a straght ine manner for the lour years of the product ife (as with all fads, il its felt the sales will end quickly) The is the only initial cost for the production Pappy's has a tax rate of 30 percent and a roqured return of 12 percent Calculate the payback period for this project (Do not round intermediate calculations and round your answer to 2 decimal places, e.g 32.16. Payback periocd Calculate the NPV for this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g NPV years Calculate the IRR for this project (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e g IRR Ditficulty 1 Basic Problem 9-20 Flows and NPV [LO 2 Learning Objectve 0002 Analyze a pojncs projected cash flaws Calculating Project C ash 612 AM 12/5/2017

Explanation / Answer

Payback period= annual operating cash flow/initial net investment

payback period= 642000/239208= 2.68 years

NPV:

IRR is the rate at which NPV is equal to zero.

at 18.12% NPV is near zero

IRR= 18.12%

Particulars Amount Revenue        5,86,000 Less: Expenses Variable costs        1,23,060 Fixed costs        1,90,000 Depreciation        1,60,500 Total expenses        4,73,560 Profit before tax        1,12,440 Less: Tax@ 30%            33,732 Proft after tax            78,708 Add: Depreciation        1,60,500 Annual net cash flow from operations        2,39,208

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