Explore BrainMass

Net Present Value of project for Golden Gelt Giftware.

Project evaluation: The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40.00. The unit cost of the giftware is $25.00.

Year Unit Sales
1 $22,000.00
2 $30,000.00
3 $14,000.00
4 $5,000.00
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 .20 x 22,000 x $40= $176,000.00. Plant and equipment necessary to establish the Giftware business will require an additional investment of $200,000.00. 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 0. The firm's tax rate is 35%.

What is the net present value of the project? The discount rate is 20%.

Please show all work.

Solution Preview

See attached file.

NPV is $212,021.48. I have made an Excel spreadsheet available for you that shows the calculations.

Unit Price $40
Unit Cost $25 ...

Solution Summary

In Excel, the solution is clearly calculated.