Tom Morrison Inc.,a leading manufacturer of golf equipment,is currently evaluating a new golf ball called the 'Feathery'.The secret to the Feathery is that its core is made from goose down.The advantage of down is that the ball flies higher and longer.You have completed an analysis of the Feathery project and estimated the NPV to be $148,643.
After completing your analysis,your boss tells you that the Feathery project will occupy an unused portion of the Morrison plant and that Morrison could have leased the space to another user for $15,000 per annum for two years.Assume a tax rate of 30% and a cost of capital of 10%.What is the NPV of the project with this fact included? (Round to the nearest dollar)

Question

Quizplus · Accepted Answer

Subtract the opportunity cost of using the space in the plant (i.e. the foregone $15,000 of rent after tax).
NPV = $148,643 - $15,000 × (1-0.30)/(1.10) - $15,000 × (1 - 0.30) 11ea7fdb_fc8b_154d_a768_376cb1d34789_TB2902_11 NPV = $148,643 - $18,223.14 = $130,419.86