Question

The resort project would require a $20,500,000 investment. At the end of ten years, some of the equipment would have a salvage value of $300,000. The project would require additional working capital $450,000 in the form of an increase in the minimum balance required by their bank and this working capital would be released at the end of the project. The project would provide estimated net income each year as follows:Sales............................................................... ..................... $6,500,000

Less variable expenses................................... 4,275,000

Contribution margin...................................... .............. $2,225,000

Less fixed expenses:

Fixed expenses*................................. .............................. $1,115,000

Net income.................................................... ................... $1,111,000

Answer 1

Net present value

Step-by-step explanation:

Missing Information

Weighted average cost of capital: 8% and Solve for net present value:

investment: project outlay 20,500,000 + increase in working capital 450,000

F10 salvage value: 300,000 + 450,000 liberate working capital

cahsflow per year income 1,111,000

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C 1,111,000.00

time 10

rate 0.08

`1111000 * (1-(1+0.08)^(-10) )/(0.08) = PV\\`

PV $7,454,900.4342

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity $750,000.00

time 10.00

rate 0.08000

`(750000)/((1 + 0.08)^(10) ) = PV`

PV 347,395.1161

Net present value

7,454,900 + 347,395 - 20,500,000 - 450,000 = -13.147.705