Calculate the Net Present Value of the Windmill venture

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Reference no: EM132768405

Question - Quixotic Enterprises is about to embark on another venture. Poncho Sanchos, the faithful financial analyst, once again will examine the viability of this venture after 31 failures.

A number of windmills are to be constructed on the southern frontier to generate electricity. They will cost $390,000 and will last 11 years, at which time they will have an estimated salvage value of $25,000. However, a capital upgrade of $98,000 will be required at the end of five years. An inventory of spare parts (working capital) amounting to $11,000 will be required during the term of the venture and will be housed in a warehouse that is currently not being used, but which has been used for Quixotic's previous ventures. The warehouse could be rented out at $4,000 per year.

This enterprise is expected to generate cash from the sale of electricity of $158,000 a year for 11 years. Cash expenses for each of the 11 years will be $11,000.

The company's tax rate is 21 percent, the CCA rate is 9 percent and the cost of capital is 22 percent.

A. Calculate the Net Present Value of the Windmill venture by completing the table?

B. It's not worth any marks, but it helps with the marking: what number did you use for (Cpv - Spv)?

C. Should Quixotic dream the impossible dream and invest in the Windmill venture?

Reference no: EM132768405

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