Calculate the NPV for the Following Capital Budgeting Proposal: $100,000

question 15

Essay

Calculate the NPV for the following capital budgeting proposal: $100,000 initial cost, to be depreciated straight-line over five years to an expected salvage value of $5,000, 35 percent tax rate, $45,000 additional annual revenues, $15,000 additional annual expense, $8,000 additional investment in working capital, 11 percent cost of capital.
$\begin{array}{|l|r|r|r|r|r|r|}\hline & {\text { Year 0 }} & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } & \text { Year 5 } \\\hline \text { Cost } & -100,000 & & & & & \\\hline \text { Change in Working } & -8,000 & & & & & 8,000 \\\hline \text { Capital } & & & & & & \\\hline \text { Revenues } & 45,000 & 45,000 & 45,000 & 45,000 & 45,000 & \\\hline \text { - Expenses } & -15,000 & -15,000 & -15,000 & -15,000 & -15,000 & \\\hline \text { - Dep } & & -19,000 & -19,000 & -19,000 & -19,000 & -19,000 \\\hline \text { = Pretax Profit } & & 11,000 & 11,000 & 11,000 & 11,000 & 11,000 \\\hline \text { Taxes } & & 3,850 & 3,850 & 3,850 & 3,850 & 3,850 \\\hline \text { Profit } & & 7,150 & 7,150 & 7,150 & 7,150 & 7,150 \\\hline \text { Salvage Value } & & & & & & 5,000 \\\hline \text { Tax effect } & & & & & 0 & 5,000 \\\hline \text { Cash Flows } & -108,000 & 26,150 & 26,150 & 26,150 & 26,150 & 39,150\\\hline\end{array}$

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Definitions:

Behavioral Risk

Behaviors that increase the likelihood of developing health problems or harm, such as smoking, poor diet, and physical inactivity.

Lung Cancer Deaths

Fatal outcomes resulting from lung cancer, a disease characterized by uncontrolled cell growth in tissues of the lung.

Agricultural Demand

The total request or need for agricultural products, influenced by factors such as population growth, dietary preferences, and biofuel policies.

Unstable

Lacking consistency, predictability, or stability; prone to sudden change or variability.