Keiper , Inc. is considering a new three-year expansion project that requires an
ID: 2701664 • Letter: K
Question
Keiper , Inc. is considering a new three-year expansion project that requires an intial fixed asset inventsment of 2.7 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an intial investment in net working capital of $300,000 and the fixed asset will have a market value of $210,000 aat then end of the project. If the tax rate 35 percent, what is the projects year 1 net ash flow, year? year 3?
Explanation / Answer
net cash flow of year 0 = 2700000 + 300000 = 3000000
net cash flow of year 1 = (2080000 - 775000) * (1-0.35) + 0.35 * (2700000 * 0.333) = 1162935
net cash flow of year2 = (2080000 - 775000) * (1-0.35) + 0.35 * (2700000 * 0.445) = 1268775
net cash flow of year3 = (2080000 - 775000) * (1-0.35) + 0.35 * (2700000 * 0.148) + 300000 + 210000 - 300000 * 0.35
= 1393110
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.