keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2653639 • 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 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 $2,080,000 in annual sales, with costs of $775,000. The tax rate is 35 percent and the required return on the project is 12 percent. What is the project’s NPV? (Round your answer to 2 decimal places. (e.g., 32.16))
keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 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 $2,080,000 in annual sales, with costs of $775,000. The tax rate is 35 percent and the required return on the project is 12 percent. What is the project’s NPV? (Round your answer to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Answer:
Calculation of NPV:
Particulars Amount Annual sales 2080000 Less: cost 775000 EBIT 1305000 Less: dep 900000 Income 405000 Less: tax@35% 141750 EAT 263250 Add: dep 900000 OCF 1163250Related Questions
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