CHAPTER 8: PROBLEM 1 Cost of Souffle Maker $27,000 ($27,000) Economic Life 6 yea
ID: 2769908 • Letter: C
Question
CHAPTER 8: PROBLEM 1
Cost of Souffle Maker
$27,000
($27,000)
Economic Life
6
years
# of Souffles produced per year
2,300
Cost to make each Souffle
$2
Price of each Souffle
$7
Discount Rate
14%
Tax Rate
34%
Step 1: First calculate the Operating Cash Flow.
Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative.
NPV =
(You will accept the project if the NPV is positive.)
CHAPTER 8: PROBLEM 1
Cost of Souffle Maker
$27,000
($27,000)
Economic Life
6
years
# of Souffles produced per year
2,300
Cost to make each Souffle
$2
Price of each Souffle
$7
Discount Rate
14%
Tax Rate
34%
Step 1: First calculate the Operating Cash Flow.
Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below.
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative.
NPV =
(You will accept the project if the NPV is positive.)
Explanation / Answer
NPV is present valeu of cashflows at discoun rate of 14% which would be equal to 23521,
Hence positive NPV
0 1 2 3 4 5 6 Units Produced 2300 2300 2300 2300 2300 2300 Price per soufulle 7 7 7 7 7 7 Sales 16100 16100 16100 16100 16100 16100 Cost to make scouffle 2 2 2 2 2 2 Cost per scouffle 4600 4600 4600 4600 4600 4600 PBT 11500 11500 11500 11500 11500 11500 TAX 3910 3910 3910 3910 3910 3910 PAT 7590 7590 7590 7590 7590 7590 Cashflows Investment -2700 7590 7590 7590 7590 7590 7590NPV is present valeu of cashflows at discoun rate of 14% which would be equal to 23521,
Hence positive NPV