Discuss problem related to the proposed contract of texas

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Reference no: EM131788456

Question: The Bagwell Company has a proposed contract with the First Military Base Facility of Texas. The initial investment in land and equipment will be $90,000. Of this amount, $60,000 is subject to five-year MACRS depreciation. The balance is in non depreciable property (land). The contract covers a six-year period. At the end of six years the non depreciable assets will be sold for $30,000. The depreciated assets will have zero resale value. The contract will require an additional investment of $40,000 in working capital at the beginning of the first year and, of this amount, $20,000 will be returned to the Bagwell Company after six years. The investment will produce $32,000 in income before depreciation and taxes for each of the six years. The corporation is in a 35 percent tax bracket and has a 10 percent cost of capital. Should the investment be undertaken? Use the net present value method.

Reference no: EM131788456

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