Problem: Foxglove Corp. is faced with an investment project. The following information is associated with this project:
|
Year
|
Net income*
|
Allowable deprecation for 3-yr. MACRS class
|
|
1
|
$50,000
|
0.33
|
|
2
|
60,000
|
0.45
|
|
3
|
70,000
|
0.15
|
|
4
|
60,000
|
0.07
|
Assume no interest expenses and a zero tax rate.
The project involves an initial investment of $100,000 in equipment that falls in the 3-year MACRS class and has an estimated salvage value of $15,000. In addition, the company expects an initial increase in net operating working capital of $5,000 which will be recovered in year 4. The cost of capital for the project is 12%. What is the project’s net present value? (Round the final answer to the nearest whole dollar.)