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
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%.
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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 ...
In Excel, the solution is clearly calculated.