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Calculate the net present value of the windmill venture

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Reference no: EM132951064

Oyceee 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 $433,000 and will last 10 years, at which time they will have an estimated salvage value of $28,000. However, a capital upgrade of $94,000 will be required at the end of five years. An inventory of spare parts (working capital) amounting to $9,000 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 Oyceee previous ventures. The warehouse could be rented out at $5,000 per year.
  • This enterprise is expected to generate cash from the sale of electricity of $142,000 a year for 10 years. Cash expenses for each of the 10 years will be $12,000.
  • The company's tax rate is 22 percent, the CCA rate is 5 percent and the cost of capital is 16 percent.

Problem 1: Calculate the Net Present Value of the Windmill venture.

Reference no: EM132951064

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