Question: Lander Company has an opportunity to pursue a capital budgeting project with a five-year time horizon. After careful study, Lander estimated the following costs and revenues for the project:
| Cost of equipment needed |
|
|
|
$ |
250,000 |
| Working capital needed |
|
|
|
$ |
62,000 |
| Overhaul of the equipment in two years |
|
|
|
$ |
19,000 |
| Annual revenues and costs: |
|
|
|
|
|
| Sales revenues |
|
|
|
$ |
370,000 |
| Variable expenses |
|
|
|
$ |
190,000 |
| Fixed out-of-pocket operating costs |
|
|
|
$ |
84,000
|
The piece of equipment mentioned above has a useful life of five years and zero salvage value. Lander uses straight-line depreciation for financial reporting and tax purposes. The company's tax rate is 30% and its after-tax cost of capital is 14%. When the project concludes in five years the working capital will be released for investment elsewhere within the company.
Required: Calculate the net present value of this investment opportunity. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)