Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2705613 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,160,000 in annual sales, with costs of $839,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 at the end of the project.
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,160,000 in annual sales, with costs of $839,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 at the end of the project.
Explanation / Answer
I worked through it again and got different answers. Here is a spreadsheet:
Hope that helps!
Year 0 1 2 3 Revenue $ - $ 2,160,000 $ 2,160,000 $ 2,160,000 Depreciation $ - $ (979,902) $ (1,306,830) $ (435,414) Other Costs $ - $ (839,000) $ (839,000) $ (839,000) "NOPAT" $ - $ 225,125 $ 9,352 $ 584,487 Add Depreciation $ - $ 979,902 $ 1,306,830 $ 435,414 Cash Flow from Operations $ - $ 1,205,027 $ 1,316,182 $ 1,019,901 Cost of Machine $ (2,940,000) Installation $ - Net Working Capital $ (380,000) $ 380,000 Sale of Equipment $ 250,000 Book Value of Equipment $ 217,854 Profit from Sale $ 32,146 Tax on Sale $ (10,930) Total Cash Flow $ (3,320,000) $ 1,205,027 $ 1,316,182 $ 1,638,971Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.