A project has an initial requirement of $261,000 for fixed assets and $27,000 fo
ID: 2720448 • Letter: A
Question
A project has an initial requirement of $261,000 for fixed assets and $27,000 for net working capital. The fixed assets will be depreciated to a zero book value over the four-year life of the project and have an estimated salvage value of $78,000. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $96,200 and the discount rate is 13 percent. What is the project's net present value if the tax rate is 35 percent? $42,011 $43,333 $45,799 $47,880 $47,919
Explanation / Answer
Cashflows
0
1
2
3
4
Initial investment
-2,610,00
Working captial
-27,000
Operating cshflow
96,200
96,200
96,200
96,200
less Depreciation
65,250
65,250
65,250
65,250
Earnings before taxes
30,950
30,950
30,950
30,950
less taxes
10,833
10,833
10,833
10,833
Earnings after taxes
20,118
20,118
20,118
20,118
Net cash flows
85,368
85,368
85,368
85,368
add working capital
27000
add salvage value
78000*65
50700
Net cash flows
-288000
85368
85368
85368
163068
PVIF
1
0.8849558
0.78315
0.69305
0.613319
PV
-288000
75546
66855
59164
100012
13578
NPV
Cashflows
0
1
2
3
4
Initial investment
-2,610,00
Working captial
-27,000
Operating cshflow
96,200
96,200
96,200
96,200
less Depreciation
65,250
65,250
65,250
65,250
Earnings before taxes
30,950
30,950
30,950
30,950
less taxes
10,833
10,833
10,833
10,833
Earnings after taxes
20,118
20,118
20,118
20,118
Net cash flows
85,368
85,368
85,368
85,368
add working capital
27000
add salvage value
78000*65
50700
Net cash flows
-288000
85368
85368
85368
163068
PVIF
1
0.8849558
0.78315
0.69305
0.613319
PV
-288000
75546
66855
59164
100012
13578
NPV
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