Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2502427 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 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 $2,110,000 in annual sales, with costs of $805,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $225,000 at the end of the project. If the tax rate is 35 percent, what is the projects year 0 net cash flow? Year 1? Year 2? Year 3?
If the required return is 12 percent, what is the project's NPV?
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 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 $2,110,000 in annual sales, with costs of $805,000. The project requires an initial investment in net working capital of $330,000, and the fixed asset will have a market value of $225,000 at the end of the project. If the tax rate is 35 percent, what is the projects year 0 net cash flow? Year 1? Year 2? Year 3?
If the required return is 12 percent, what is the project's NPV?
Explanation / Answer
Cash Outflows Year 0 PARTICULARS Amount Fixed Asset 2790000 Working Capital 330000 Total Cash outflow 3120000 Depreciation (cost/ no.of years = (2790000/3))Related Questions
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