Summer Tyme, Inc., is considering a new 3-year expansion project that requires a

Question

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.644 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $361,200. The project requires an initial investment in net working capital of $516,000. The project is estimated to generate $4,128,000 in annual sales, with costs of $1,651,200. The tax rate is 32 percent and the required return on the project is 10 percent. The NPV for this project is $_________.

Explanation / Answer

Intial Invest ment 4644000 Add working Captital Requirement 516000 Total Out flow 5160000 Cash Inlow =[(Sales-cost)-depreciation)](1-tax rate)+ Depreciation =[(4128000-1651200)-1548000](1-.32)+1548000 =631584+1548000 =2179548 Present Value of Cash Inflow =2179548xPVIFA(10%,3)+361200xPVIF(10%,3) =2179548x2.49+361200x.751 =5427074+271261 =5698335 NPV=PV of cash in flow-cash outflow =5698335-5160000 =538335 Dep=4644000/3=1548000 pa

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.