jarcnc
Dec 10, 2015, 06:53 PM
Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a piece of equipment for $130,000. The equipment would have a useful life of five years and zero salvage value. It would be depreciated for financial reporting and tax purposes using the straight-line method. After careful study, Winthrop estimated the following annual costs and revenues for the new product:
Annual revenues and costs:
Sales revenues
$
250,000
Variable expenses
$
120,000
Fixed out-of-pocket operating costs
$
70,000
The company’s tax rate is 30% and its after-tax cost of capital is 15%.
What is the net present value?
I did 250,000 - 120,000 - 70,000 to get 60,000. I took that number by the discount factors (.870, 756, 658, 572, 497). Then added those numbers to get 201,180. Then that minus 130,000 to get 71,180. I don't really understand it.
Annual revenues and costs:
Sales revenues
$
250,000
Variable expenses
$
120,000
Fixed out-of-pocket operating costs
$
70,000
The company’s tax rate is 30% and its after-tax cost of capital is 15%.
What is the net present value?
I did 250,000 - 120,000 - 70,000 to get 60,000. I took that number by the discount factors (.870, 756, 658, 572, 497). Then added those numbers to get 201,180. Then that minus 130,000 to get 71,180. I don't really understand it.