Problem:

The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $30. Year Unit Sales 1 41,000 2 44,000 3 18,000 4 11,000 Thereafter 0 It is expected that net working capital will amount to 10% of sales in the following year. For example, the store will need an initial (year-0) investment in working capital of .10 × 41,000 × $40 = $164,000. Plant and equipment necessary to establish the Giftware business will require an additional investment of $219,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 40%.

Required:

Question 1: What is the net present value of the project? The discount rate is 15%.

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