Accounting Calculations
Yr Funding A Funding B zero -$5,000,000 -5,000,000 1 $1,500,000 $1,250,000 2 $1,500,000 $1,250,000 three $1,500,000 $1,250,000 four $1,500,000 $1,250,000 5 $1,500,000 $1,250,000 6 $1,500,000 $1,250,000 7 $2,000,000 $1,250,000 eight zero $1,600,000 You have got been employed as a marketing consultant for Pristine City-Tech Zither, Inc. (PUTZ), producers of superb zithers. The marketplace for zithers is rising shortly. The corporate purchased some land three years in the past for $2.1 million in anticipation of utilizing it as a poisonous waste dump web site however has lately employed one other firm to deal with all poisonous supplies. Primarily based on a latest appraisal, the corporate believes it might promote the land for $2.three million on an after-tax foundation. In 4 years, the land could possibly be offered for $2.four million after taxes. The corporate additionally employed a advertising and marketing agency to research the zither market, at a price of $125,000. An excerpt of the advertising and marketing report is as follows: The zither business could have a speedy growth within the subsequent 4 years. With the model title recognition that PUTZ brings to bear, we really feel that the corporate will be capable of promote three,600, four,300, 5,200, and three,900 models annually for the following 4 years, respectively. Once more, capitalizing on the title recognition of PUTZ, we really feel that a premium value of $750 will be charged for every zither. As a result of zithers seem like a fad, we really feel on the finish of the four-year interval, gross sales needs to be discontinued. PUTZ believes that fastened prices for the challenge shall be $415,000 per yr, and variable prices are 15 % of gross sales. The gear essential for manufacturing will value $three.5 million and shall be depreciated in keeping with a three-year MACRS schedule. On the finish of the challenge, the gear will be scrapped for $350,000. Internet working capital of $125,000 shall be required instantly. PUTZ has a 38 % tax price, and the required return on the challenge is 13 %. What's the NPV of the challenge?