Bangor Moving Company is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project’s 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project’s 3-year life. What is the project’s NPV? (Hint: Cash flows are constant in Years 1-3.)
You can work on this case in excel and copy your step-by-step answer here.
Project cost of capital (r) 10.0%
Opportunity cost $100,000
Net equipment cost (depreciable basis) $65,000
Straight-line deprec. rate for equipment 33.333%
Sales revenues, each year $123,000
Operating costs (excl. deprec.), each year $25,000
Tax rate 25%
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
To calculate the project’s NPV, we need to determine the cash flows for each year and discount them back to their present value using the project cost of capital (r).
Given data:
Project cost of capital (r): 10.0%
Opportunity cost: $100,000
Net equipment cost (depreciable basis): $65,000
Straight-line depreciation rate for equipment: 33.333%
Sales revenues, each year: $123,000
Operating costs (excluding depreciation), each year: $25,000
Tax rate: 25%
Step-by-step calculation:
Determine the annual depreciation expense for the equipment: Annual depreciation expense = Net equipment cost × Straight-line depreciation rate Annual depreciation expense = $65,000 × 33.333% = $21,666.67
Calculate the annual operating cash flow before taxes: Annual operating cash flow before taxes = Sales revenues – Operating costs – Depreciation expense Annual operating cash flow before taxes = $123,000 – $25,000 – $21,666.67 = $76,333.33
Calculate the annual tax payment: Annual tax payment = Tax rate × (Sales revenues – Operating costs – Depreciation expense) Annual tax payment = 25% × ($123,000 – $25,000 – $21,666.67) = $19,583.33
Calculate the annual after-tax cash flow: Annual after-tax cash flow = Annual operating cash flow before taxes – Annual tax payment Annual after-tax cash flow = $76,333.33 – $19,583.33 = $56,750
Determine the cash flows for each year: Year 0: Cash flow = Opportunity cost = -$100,000 Year 1: Cash flow = Annual after-tax cash flow = $56,750 Year 2: Cash flow = Annual after-tax cash flow = $56,750 Year 3: Cash flow = Annual after-tax cash flow = $56,750
Discount each cash flow back to its present value using the project cost of capital (r): Present value (PV) = Cash flow / (1 + r)^n Where n is the year (0 for Year 0, 1 for Year 1, etc.)
Year 0: PV = -$100,000 / (1 + 10%)^0 = -$100,000 Year 1: PV = $56,750 / (1 + 10%)^1 = $51,590.91 Year 2: PV = $56,750 / (1 + 10%)^2 = $46,900.83 Year 3: PV = $56,750 / (1 + 10%)^3 = $42,637.12
Therefore, the project’s NPV is $41,128.86.
Note: Negative NPV indicates that the project may not be financially viable as it does not generate enough returns to cover the opportunity cost of not selling the building.
