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The managers of Poncho Parts, Inc. plan to manufacture engine blocks for classic cars from the 1960's era. They

expect to sell 350 engine blocks

annually for the next 5 years, and management believes that the auto restorers will pay $2,000 per engine block. The necessary foundry and

machining equipment will require an outlay of $750,000. This amount will be depreciated straight line to zero over the projects life. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labor and material costs total $750 per block, and fixed costs are $150,000 per year. Assume a 32% tax rate and a 12% discount rate.


Now what is the NPV of the project?

Top Answer

PLEASE NOTE: ASSUMPTIONS1. Tax is paid one year in arrears hence there will be a tax due in... View the full answer

tutor npv-1.jpg

Poncho Parts
ASSUMPTIONS 1. Tax is paid one year in arrears
ASSUMPTIONS 1. The depreciation is assumed as the capital allowance & tax deductible
ASSUMPTIONS 3: Scrap value of $150,000 exits at...

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