Calculate net present value of this investment opportunity

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Question - Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lander estimated the following costs and revenues for the project:

Cost of equipment needed

$420,000

Working capital needed

$79,000

Overhaul of the equipment in two years

$27,500

Annual revenues and costs:

 

Sales revenues

$40,000

Variable expenses

$275,000

Fixed out-of-pocket operating costs

$118,000

The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 40% and its after-tax cost of capital is 10%. When the project concludes in five years the working capital will be released for investment elsewhere within the company.

Calculate the net present value of this investment opportunity.

Reference no: EM132107575

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