What is the net present value of this project

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Question - You are thinking about opening a car dealership. You bought some real estate last year for $700,000 which you will use for the dealership. The market value of this real estate today is $1,200,000. To build the necessary showroom and shop it will cost you $600,000, a cost which you will depreciate over 3 years. You estimate an increased need for net working capital in year zero in the amount of $40,000 which will be recovered at the end of the project. From your dealership you expect to generate annual revenues of $700,000 and have operating expenses of $200,000, and you have a 30% tax rate. Bank of America has offered to lend you $850,000 at an interest rate of 6% to be repaid over 5 years. If your cost of capital (discount rate) is 10%, what is the net present value of this project?

(A) $1,049,662

(B) -$790,338

(C) $359,662

(D) -$570,000

(E) -$850,443

(F) -$616,258

Reference no: EM132994888

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