Answered: What is the NPV of this investment

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5PA: Falkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated...

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We have the following information. We are investing in a bookbinder, which will enable us to raise our sales $10 million. This will naturally increase our AR by 20% and our inventory by 25%, while our accounts payable by 15%. The bookbinder will have a useful life of 10 years. We can charge depreciation at 10% annually. Operating expenses are 50% of sales. Additionally, we need to train four workers in the use of the new binder, and that will cost the company $100,000 in the beginning. Financial charges are $.5 million annually, and the tax rates are 35%. We sell the bookbinder for $300,000 at the end of the 10 year period. What is the NPV of this investment, if we assume that the COC of the firm is 9%?

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