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

Explanation / Answer

Cash Flow for Year 3 is 1,639,300

Operating Cash flow = $1,174,100

Terminal Cash Flow = 320000 + (220000 - 220000*34%) = $465200

Cash Flow in Year 3 = 1174100+ 465200 = $1,639,300

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