Lakeside Winery is considering expanding its wine-making operations. The expansion will require new...

Question

Lakeside Winery is considering expanding its wine-making operations. The expansion will require new equipment costing $649,000 that would be depreciated on a straight-line basis to a zero balance over the 4-year life of the project. The estimated salvage value is $187,000. The project requires $38,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $198,500 a year. Whatis the net present value of this project if the relevant discount rate is 14 percent and the tax rate is 35 percent?

A.-$14,162

B. -$8,309

C. -$2,747

D. $2,311

E. $3,615

Rochak · Accepted Answer

Year
	0
	1
	2
	3
	4
	Cost of equipment
	 -6,49,000 
	
	
	
	
	Working capital
	    -38,000 
	
	
	
	
	Operating cash flow
	
	  1,98,500 
	  1,98,500 
	  1,98,500 
	  1,98,500 
	Less: Depreciation
	
	 -1,62,250 
	 -1,62,250 
	 -1,62,250 
	 -1,62,

Lakeside Winery is considering expanding its wine-making operations. The expansion will require new equipment costing $649,000 that would be depreciated on a straight-line basis to a zero balance over...

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