Aussie Home Entertainment Pty Ltd is setting up a new franchised store in an out

Question

Aussie Home Entertainment Pty Ltd is setting up a new franchised store in an outer suburb of Sydney. This project has an initial requirement of $261 000 for fixed assets and $27 000 for net working capital. The fixed assets will be depreciated to a zero book value over the four-year life of the project and have an estimated salvage value of $78 000. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $96 200 and the discount rate is 13%. What is the project's net present value if the tax rate is 30%?

Explanation / Answer

Answer is 48190.95

0 1 2 3 4 Fixed Asset Investment -261000 net working capital -27000 Operating Cash flow 96200 96200 96200 96200 Working Capital Recouped 27000 After Tax salvage Value (78000*(1-.30)) 54600 Net Cash Flow -288000 96200 96200 96200 177800 PV factor 13% 1 0.884956 0.783147 0.69305 0.613319 PV of Cash Flow -288000 85132.74 75338.71 66671.43 109048.1 NPV = Total of PV of Cash Flow                                                                                               48,190.95

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