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Recalculate the NPV for the Proposal in Question 94, Now

Question 108

Essay

Recalculate the NPV for the proposal in question 94, now assuming that the $45,000 in annual revenues will grow at a 6 percent annual rate and that the $15,000 in annual expenses will grow at a 5 percent annual rate.Does this change your decision on the project? Explain the implications of the difference between the two questions' results.
 Year 0  Year 1  Year 2  Year 3  Year 4  Year 5  Cost 100,000 Charige in Workirg 8,000 Capital 8,000 Reveruses 45,00047,70050,56254,10157,888 - Expenses 15,00015,75016,53817,36418,580 - Dep 19,00019,00019,00019,00019,000 = Pretax Profit 11,00012,95015,02417,73720,308 Taxes 3,8504,5335,2586,2087,108 Profit 7,1508,4179,76611,52913,200 Salvage Value 5,000 Tax effect 0 Cash Flows 108,00026,15024,41728,76630,52945,200\begin{array} { | l | r | r | r | r | r | r | } \hline & { \text { Year 0 } } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & { \text { Year 4 } } & { \text { Year 5 } } \\\hline \text { Cost } & - 100,000 & & & & & \\\hline \text { Charige in Workirg } & & & & & & \mathbf { 8 , 0 0 0 } \\\hline \text { Capital } & - 8,000 & & & & & \\\hline \text { Reveruses } & 45,000 & 47,700 & 50,562 & 54,101 & 57,888 & \\\hline \text { - Expenses } & 15,000 & 15,750 & 16,538 & 17,364 & 18,580 & \\\hline \text { - Dep } & & 19,000 & 19,000 & 19,000 & 19,000 & 19,000 \\\hline \text { = Pretax Profit } & & 11,000 & 12,950 & 15,024 & 17,737 & \mathbf { 2 0 , 3 0 8 } \\\hline \text { Taxes } & & 3,850 & 4,533 & 5,258 & 6,208 & 7,108 \\\hline \text { Profit } & & 7,150 & \mathbf { 8 , 4 1 7 } & 9,766 & 11,529 & 13,200 \\\hline \text { Salvage Value } & & & & 5,000 & & \\\hline \text { Tax effect } & & & & & 0 & \\\hline \text { Cash Flows } & - 108,000 & 26,150 & 24,417 & 28,766 & 30,529 & 45,200 \\\hline\end{array}

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NPV = blured image = 23559 + 22252 + 21033...

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