Capstone Problems (20 Points Each) 19) Cascade, Inc., has assembled the estimate
ID: 2584406 • Letter: C
Question
Capstone Problems (20 Points Each) 19) Cascade, Inc., has assembled the estimates shown below relating to a proposed new product. These estimates are based on a 5-year project life, at the end of which the new equipment would be sold, working capital would revert to other r uses in the company, and the product would be discontinued. Cascade uses a discount rate of 18%. Annual cash sales $420,000 $330,000 $36,000 $200,000 $20,000 $140,000 Annual out-of-pocket cash expenses Annual depreciation on new equipment Initial cost of new equipment Salvage value of equipment in 5 years Working capital requirement Compute the net present value of the new productExplanation / Answer
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales 420,000 420,000 420,000 420,000 420,000 Less: COGS 330,000 330,000 330,000 330,000 330,000 Less: Depreciation 36,000 36,000 36,000 36,000 36,000 EBIT 54,000 54,000 54,000 54,000 54,000 Add: Depreciation 36,000 36,000 36,000 36,000 36,000 Add: Working Capital Realisation - - - - 140,000 Add: Salvage Value - - - - 20,000 Cash Flow 90,000 90,000 90,000 90,000 250,000 610,000 PVF at 18% 0.8475 0.7182 0.6086 0.5158 0.4371 Present Value 76271.18644 64636.59868 54776.77854 46420.99876 109277.304 351,383 Less: Cost of Equipment 200,000 Less: Working Capital 140,000 NPV 11,383