Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2622419 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 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 $2,170,000 in annual sales, with costs of $865,000. The tax rate is 35 percent and the required return on the project is 9 percent. What is the project
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.97 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 $2,170,000 in annual sales, with costs of $865,000. The tax rate is 35 percent and the required return on the project is 9 percent. What is the project
Explanation / Answer
Depreciation = 2.97= 0.99million
OCF = (2,170,000-865,000-0.99million)*(1-35%) + 0.99million=1194750.0
NPV = -$2.97 million + 1194750.0/1.09 + 1194750.0/1.09^2 + 1194750.0/1.09^3= $ 54,264.30
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