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# Golden Gelt Giftware: Project Evaluation, NPV of project

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Project Evaluation

The following table presents sales forecasts for Golden Gelt Giftware. The unit price is \$40. The unit cost of the giftware is \$25.

Year 1: Unit of Sales: 22,000
Year 2: 30,000
Year 3: 14,000
Year 4: 5,000

Thereafter: 0

It is expected that net working capital will amount to 20 percent of sales in the following year.

For example, the store will need an initial (Year 0) investment in working capital of .20 à? 22,000 à? \$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 using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The &#64257;rm's tax rate is 35 percent. What is the net present value of the project? The discount rate is 20 percent.

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#### Solution Summary

In an Excel format, the solution shows all the calculations required to arrive at the answer to the problem.

\$2.19