a company has providd the following information concerning a capital budgeting p
ID: 2421853 • Letter: A
Question
a company has providd the following information concerning a capital budgeting project:
investment required in equipment $450,000
net annual operating cash inflow $220,000
tax rate 30%
after tax discount rate 12%
the expected life of the prpoject and the equipment is 3 years and the equipment has a zero salvage value. the company uses straight line depreciation on all equipmemnt and the depreciation expense on the equipment would be $150,000 per year. assume cash flows occur at the end of the year except for the initial investments. the company takes income taxes into account in its capital budgeting. the net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses.
what is the net present value of the project?
Explanation / Answer
(All amounts in $) Net Annual Operating Cash Inflow per year 220000 Tax Impact @ 30% 66000 Post Tax Income 154000 Initial Investment 450000 Discount Rate Post Tax 12% Pre Tax 17.14% The Net Present Value of the project will be -$ 71,533.91
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