Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2705777 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,000,000 in annual sales, with costs of $711,000. The project requires an initial investment in net working capital of $220,000, and the fixed asset will have a market value of $300,000 at the end of the project.
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,000,000 in annual sales, with costs of $711,000. The project requires an initial investment in net working capital of $220,000, and the fixed asset will have a market value of $300,000 at the end of the project.
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.46 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,000,000 in annual sales, with costs of $711,000. The project requires an initial investment in net working capital of $220,000, and the fixed asset will have a market value of $300,000 at the end of the project. If the tax rate is 35 percent, what is the project's year 1 net cash flow? Year 2? Year 3? (Use MACRS)(Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) If the required return is 16 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))Explanation / Answer
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Year 0 1 2 3 Revenue $ - $ 2,000,000 $ 2,000,000 $ 2,000,000 Depreciation $ - $ (819,918) $ (1,093,470) $ (364,326) Other Costs $ - $ (711,000) $ (711,000) $ (711,000) "NOPAT" $ - $ 304,903 $ 127,095 $ 601,038 Add Depreciation $ - $ 819,918 $ 1,093,470 $ 364,326 Cash Flow from Operations $ - $ 1,124,821 $ 1,220,565 $ 965,364 Cost of Asset $ (2,460,000) Installation $ - Net Working Capital $ (220,000) $ 220,000 Sale of Equipment $ 300,000 Book Value of Equipment $ 182,286 Profit from Sale $ 117,714 Tax on Sale $ (41,200) Total Cash Flow $ (2,680,000.00) $ 1,124,821.30 $ 1,220,564.50 $ 1,444,164.20 Cost of Investment $ 2,460,000 Installation $ - Net Working Capital $ 220,000 Other Cost $ 711,000 Revenue/Cost Savings $ 2,000,000 Sale of Equipment $ 300,000 Tax Rate 35% Required Return 16% IRR 18.6% NPV $105,143.68Related Questions
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