Janelle is very innovative and attentive to detail. As she starts her own company, she leads her employees and ensures that ever
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Answer:
The cash inflows in Year 2 is: $6,750
The present value of the project in Year 2 is: $5,286 (ignored the depreciation)
The Net Present Value in Year 2 is: $-642,112 (required return rate is 13%)
Explanation: <em><u>(See the attached table also)</u></em>
1. Initial investment: $587,000
2. Year 1:
- Sales: $625,000
- Cash expense: $487,000
- Money to support project: $625,000 x 12% = $75,000
- Tax to pay: $625,000 x 21% = $131,250
=> Cash inflow in Year 1:
625,000 - 487,000- 75,000 - 131,250 = - 68,250
Present value: -68,250 : (1+0.13) = -60,398
NPV: -60,398 - 587,000 = - 647,398
Year 2:
- Capital from year 1: $75,000
- Sales: $625,000
- Cash expense: $487,000
- Money to support project: $625,000 x 12% = $75,000
- Tax to pay: $625,000 x 21% = $131,250
=> Cash inflow in Year 2:
75,000 + 625,000 - 487,000- 75,000 - 131,250 = 6,750
Present value: 6,750 : [(1+0.13)^2] = 5,286
NPV year 2 = NPV Year 1 + PV Year 2 = -647,398 + 5,286 = -641, 112
