13. 700 points Flatte Restaurant is considering the purchase of a $10,600 souffl

Question

13. 700 points Flatte Restaurant is considering the purchase of a $10,600 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method The produce 2,300 soufflés per year, with each costing $2.70 to make and priced at $5.55 Assume that the discount rate is 16 percent and the tax rate is 40 percent will What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g, 32.16.) NPV Should the company make the purchase? O Yes No

Explanation / Answer

annual depreciation=10600/5=2120

annual cash flow=(((2300*5.55)-(2300*2.70)-2120)*(1-40%))+2120=4781

NPV=4781/(1+16%)^1+4781/(1+16%)^2+4781/(1+16%)^3+4781/(1+16%)^4+4781/(1+16%)^5

=15654.40

As NPV is above 0, so purchase this

the above is answer..

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