Problem - Capital Budgeting
Slowly Company has obtained the following information about a prepared project.
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Future cash sales
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$200,000
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Future cash expenses
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$140,000
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Depreciation expense per year
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$35,000
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Estimated salvage value in 5 years
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5,000
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Cost of equipment
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$180,000
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Cost of capital
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10%
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Income tax rate
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40%
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Estimated useful life (in years)
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5
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Depreciation method
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Straight-line
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Present value of ordinary annuity at 10% for 5 periods
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3.7908
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Present value of a dollar at 10% for 5 periods
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0.6209
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Required:
A) What is the net after-tax income per year?
B) What is the annual after-tax cash flow from depreciation expense?
C) What is the NPV of the project?