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 $2.76 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 $2,100,000 in annual sales, with costs of $795,000. The project requires an initial investment in net working capital of $320,000, and the fixed asset will have a market value of $220,000 at the end of the project. If the tax rate is 34 percent, what is the project

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Year 0 1 2 3 Revenue $                         -   $      2,100,000 $        2,100,000 $      2,100,000 Depreciation $                         -   $       (920,000) $         (920,000) $       (920,000) Other Costs $                         -   $       (795,000) $         (795,000) $       (795,000) "NOPAT" $                         -   $          254,100 $            254,100 $          254,100 Add Depreciation $                         -   $          920,000 $            920,000 $          920,000 Cash Flow from Operations $                         -   $      1,174,100 $        1,174,100 $      1,174,100 Cost of Machine $       (2,760,000) Installation $                         -   Net Working Capital $           (320,000) $          320,000 Sale of Equipment $          220,000 Book Value of Equipment $                     -   Profit from Sale $          220,000 Tax on Sale $          (74,800) Total Cash Flow $       (3,080,000) $      1,174,100 $        1,174,100 $      1,639,300

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