Cochrane, Inc., is considering a new three-year expansion project that requires

Question

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,310,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,220,000 in annual sales, with costs of $1,210,000. Assume the tax rate is 30 percent and the required return on the project is 11 percent.

What is the project

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,310,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,220,000 in annual sales, with costs of $1,210,000. Assume the tax rate is 30 percent and the required return on the project is 11 percent.

Explanation / Answer

annual profit = 2,220,000 - 1,210,000 - (2,220,000 - 1,210,000 - 770,000)*0.3

= 878000

NPV = -2,310,1000 + 878000/(1.11) + 878000/(1.11^2) + 878000/(1.1^3)

= -164418

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.