The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25.
Year Unit Sales
1 22,000
2 30,000
3 14,000
4 5,000
Thereafter 0
It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year 0) investment in working capital of 0.20 × 22,000 × $40 = $176,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $200,000. This investment will be depreciated straight-line over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule.
What is the net present value of the project?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
By how much does NPV increase if the firm takes immediate 100% bonus depreciation?
