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?

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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:

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Originally Posted by Curlyben

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..

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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.