United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $185,000, and thereafter, the rent is expected to grow in line with Inflation at 4% a year. In addition to using the warehouse, the proposal envisages an Investment in plant and equipment of $1.71 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $570,000. Finally, the project requires an immediate Investment in working capital of $435,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $5.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 21%. The cost of capital is 12%. What is the NPV of Pigpen's project? Note: Enter your answer in thousands, not in millions, rounded to the nearest dollar. NPV Answer is complete but not entirely correct. 143,932 thousand
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $185,000, and thereafter, the rent is expected to grow in line with Inflation at 4% a year. In addition to using the warehouse, the proposal envisages an Investment in plant and equipment of $1.71 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $570,000. Finally, the project requires an immediate Investment in working capital of $435,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $5.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 21%. The cost of capital is 12%. What is the NPV of Pigpen's project? Note: Enter your answer in thousands, not in millions, rounded to the nearest dollar. NPV Answer is complete but not entirely correct. 143,932 thousand
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 6P: New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its...
Related questions
Question
Baghiben
Transcribed Image Text:Problem 9-19 Project Evaluation (LO2, LO3)
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing
warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $185,000, and
thereafter, the rent is expected to grow in line with Inflation at 4% a year. In addition to using the warehouse, the proposal envisages an
Investment in plant and equipment of $1.71 million. This could be depreciated for tax purposes straight-line over 10 years. However,
Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $570,000. Finally, the
project requires an immediate Investment in working capital of $435,000. Thereafter, working capital is forecasted to be 10% of sales
In each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed
are expected to be $5.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate.
Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 21%. The cost of capital is 12%.
What is the NPV of Pigpen's project?
Note: Enter your answer in thousands, not in millions, rounded to the nearest dollar.
NPV
Answer is complete but not entirely correct.
$
143,932 x thousand
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 7 images
Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College