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Gaston Company is considering a capital budgeting project that would require a $1,900,000 investment in...

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Accounting

Gaston Company is considering a capital budgeting project that would require a $1,900,000 investment in equipment with a useful life of five years and no salvage value. The companys tax rate is 30% and its after-tax cost of capital is 16%. It uses the straight-line depreciation method for financial reporting and tax purposes. The project would provide net operating income each year for five years as follows:

Sales $ 3,100,000
Variable expenses 1,840,000

Contribution margin 1,260,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $ 580,000
Depreciation 380,000

Total fixed expenses 960,000

Net operating income $ 300,000

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:
Compute the projects net present value. (Round discount factor(s) to 3 decimal places.)

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