Problem
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 $ 350,000 Working capital needed $ 72,000 Overhaul of the equipment in two years $ 24,000 Annual revenues and costs: Sales revenues $ 470,000 Variable expenses $ 240,000 Fixed out-of-pocket operating costs $ 104,000 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 13%. When the project concludes in five years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
Required: Calculate the net present value of this investment opportunity.