Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2632708 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 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 $2,060,000 in annual sales, with costs of $755,000. The tax rate is 35 percent and the required return on the project is 13 percent. What is the project
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 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 $2,060,000 in annual sales, with costs of $755,000. The tax rate is 35 percent and the required return on the project is 13 percent. What is the project
Explanation / Answer
Annual Depreciation = 2640000/3 = 880000
Net Income before tax = 2060000 - 755000 - 880000 = 425,000
Tax Expenses = 425000*35% = 148750
Net Income = 276250
Annual OCF = Net Income + Annual Depreciation
Annual OCF = 276250 + 880000
Annual OCF = $ 1,156,250
NPV = -2640000 + 1156250/1.13 + 1156250/1.13^2 + 1156250/1.13^3
NPV = $ 90,082.69
Answer
NPV = $ 90,082.69
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.