Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. The company would need to purchase a piece of equipment for $145,000 that has 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. Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues Variable expenses $360,000 $ 200,000 $ 86,000 Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the net present value of this investment opportunity.
Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. The company would need to purchase a piece of equipment for $145,000 that has 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. Winthrop estimated the following annual costs and revenues for the new product: Annual revenues and costs: Sales revenues Variable expenses $360,000 $ 200,000 $ 86,000 Fixed out-of-pocket operating costs The company's tax rate is 30% and its after-tax cost of capital is 17%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Calculate the net present value of this investment opportunity.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. The company would need to
purchase a piece of equipment for $145,000 that has 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. Winthrop estimated the following annual costs and revenues for
the new product:
Annual revenues and costs:
Sales revenues
Variable expenses
$360,000
$ 200,000
$ 86,000
Fixed out-of-pocket operating costs
The company's tax rate is 30% and its after-tax cost of capital is 17%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Calculate the net present value of this investment opportunity.
Note: Round your final answer to the nearest whole dollar.
Answer is complete but not entirely correct.
$
2. Net present value
29,000 X
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