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

Question

Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.49 million. The fixed asset falls into the three-year MACRS class. The project is estimatedto generate $2,010,000 in annual sales, with costs of $719,000. The project requires an initial investment in net working capital of $230,000, and the fixed asset will have a market value of $295,000 at the end of the project. the tax rate is 34 percent, what is the projects year 1 net cash flow? Year 2? Year 3? and if the requried return is 16% what is the NPV

Explanation / Answer

OCF = (1-T) x (Sales - Costs) + T x Depr = .66 x 1,291,000 + .34 x 830,000 =
1,134,260
0 1 2 3
OCF 1134260 1134260 1134260
NCS -2490000 0 0 0
ChNWC
----- ---------------------------------------
CFFA -2490000 1134260 1134260 1134260

NPV = 57422.67

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

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