Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2451610 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. If the tax rate is 35 percent, what is the project’s year 1 net cash flow? Year 2? Year 3? (Use MACRS) (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
If the required return is 12 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Years Cash Flow Year 0 $ Year 1 $ 1163250 Year 2 $ Year 3 $Explanation / Answer
depriciation in 1st year=12000*.20=$2400
2nd year=12000*.32=$ 3840
3rd=2304
4rd=1382.40
5th=1382.40
6th=691.20
initial investment outlay
cost - 4200000
modification -4200000
depriciable basis -300
before tax cost -4200000
tax 0
net after tax cash flow -4200000
after tax cash flow from operation t1 t2 t3
change in sales 3100000 3100000 3100000
change in operating cost 990000 990000 990000
change in noi=btcf 2110000 2110000 2110000
change in interest o 0 0
marc 3 year % 33.33% 44.44% 14.82
change in dep deduction 1399860 1866480 622440
net fixed asset 2800140 933660 311220
change in taxable inciome 710140 243520 1487560
change in tax 35% 248549 85232 520646
change in btcf 2110000 2110000 2110000
change in tax 248549 85232 520646
change in atcf 1861451 2024768 1589354
terminal after tax cash flow
selling price 2110000
selling expense 0
basis in machine
original machine 4200000
accumulated depriciation 3888780
adjusted basis 311220
gain on sale -101220
tax on gain on sale -35427
after tax cash flow on the sale 245427
decrese in nwc 300000
net after tax cash floe diposition 545427
point in time 0 1 2 3
after tax cash flow -4500000 1861451 2024768 2134781
calculate pv @rrr 12% 4795367
npv @rrr 12% 295637
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