Reference no: EM13181582

In March of year 2020, the Performance Marketing Company begins construction on a new warehouse.. This warehouse operation will be the only business activity of this new company (thus this is a small company with no other taxable income besides this operation). The company will import high performance racing drive-shafts made in Germany. The Performance Marketing Company will also purchase double speed rear axles manufactured by the PbP Company. These components will be shipped to this new building where they will be packaged together and shipped to customers. This warehouse will cost $134,000 plus $20,000 for earthwork to make it usable, and is placed into service in November of year 2021. The company also buys packaging equipment for this business in October 2020 for $285,000 but this equipment is placed into service in November of year 2021 and it will be depreciated according to the normal (accelerated) depreciation schedule with a 5 year MACRS class life. All the capital expenses for the building and the machinery occurs during the year 2020, but the company begins selling to customers in November of 2021.

For each month the company is producing, it buys the parts, packages them together, and ships them out to customers. It will sell 95 of these packages per month, and receives $2200 per package sold. Total cash expenses are $1600 per package. During year 2021, the company sells packages and has expenses in only November and December (2 months). The business continues in years 2022 through 2025 and receives income and pays expenses for 95 units per month for all 12 months of these years. During the last year (2026), it is only able to sell packages for the first 5 months of the year. Thus in year 2026, it earns revenue and must pay the expenses for packages shipped only for January through May (5 months). This is a small business and will pay Federal taxes according to the Federal tax schedule. In year 2026, this business will permanently close at the end of October, thus its equipment and building are permanently taken out of service in October. On October 25 of year 2026, the equipment is sold for $85,000 and the building for $73,000. The capital gain tax rate is 18% and capital losses can be used to offset capital gains. What is the Net Present Value of this business at the year 2020 if the company's minimum acceptable rate of return is 9%?