Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2614128 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. 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 $2,070,000 in annual sales, with costs of $765,000. The tax rate is 34 percent and the required return on the project is 13 percent. What is the project’s NPV? (Round your answer to 2 decimal places. (e.g., 32.16))
NPV??
Explanation / Answer
Project’s Net Present Value [ NPV] = $78,145.51
Particulars
Amount ($)
Annual Sales
2,070,000
Less : Costs
(765,000)
Less: Depreciation [ $26,70,000 / 3 Years ]
(890,000)
Net Income Before Tax
415,000
Less : Tax at 34%
141,500
Net Income After Tax
273,900
Add Back : Depreciation
890,000
Annual Cash Flow
1,163,900
Net Present Value [ NPV] = Present Value of Annual cash inflows – Initial Investments
= $1,163,900 x [PVIF 13%, 3 Years] - $26,70,000
= [$1,163,900 x 2.361153 ] - $26,70,000
= $2,748,145.51 - 26,70,000
= $78,145.51
Particulars
Amount ($)
Annual Sales
2,070,000
Less : Costs
(765,000)
Less: Depreciation [ $26,70,000 / 3 Years ]
(890,000)
Net Income Before Tax
415,000
Less : Tax at 34%
141,500
Net Income After Tax
273,900
Add Back : Depreciation
890,000
Annual Cash Flow
1,163,900
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.