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    jarcnc's Avatar
    jarcnc Posts: 3, Reputation: 1
    New Member
    		  
    #1

    Dec 10, 2015, 03:25 PM
    What is the net present value of this situation?
    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?
    Curlyben's Avatar
    Curlyben Posts: 18,514, Reputation: 1860
    BossMan
    		  
    #2

    Dec 10, 2015, 03:26 PM
    What do YOU think ?
    While we're happy to HELP we wont do all the work for you.
    Show us what you have done and where you are having problems..
    jarcnc's Avatar
    jarcnc Posts: 3, Reputation: 1
    New Member
    		  
    #3

    Dec 10, 2015, 03:51 PM
    Well 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.

    Quote Originally Posted by Curlyben View Post
    What do YOU think ?
    While we're happy to HELP we wont do all the work for you.
    Show us what you have done and where you are having problems..
    Well 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.
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