Reference no: EM131900328

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	240,000
Working capital needed	61,000
Overhaul of the equipment in two years	18,500
Annual revenues and costs:
Sales revenues	360,000
Variable expenses	185,000
Fixed out-of-pocket operating costs	82,000

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 40% and its after-tax cost of capital is 12%. When the project concludes in five years the working capital will be released for investment elsewhere within the company.

Required:

Calculate the net present value of this investment opportunity.