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    Projection Evaluation: Net present value of the project

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    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 22,000
    Year 2 30,000
    Year 3 14,000
    Year 4 5,000

    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 X 22,000 X $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 MARCS and a 3=year life. After 4 years, the equipment will have an economic and book value of zero. The firm'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

    This explains the steps to compute the net present value of the project in a clear format in Excel as well as whether the company should take on the project based on the results.

    $2.19

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