Down Under Boomerang, Inc., is considering a new three-year expansion project th

Question

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of S2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2, 160,000 in annual sales, with costs of $855,000. The tax rate is 34 percent and the required return is 10 percent. What is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Answer : NPV = $ 30721.50    Sales cost Depreciation Income before tax Tax @ 34% Net Income Cash inflow PVIFA 10%, 3 PV of Cash flow a b c d = a-b-c e =d*34% f =d-e g= f+c h i=h*g 2160000.00 855000.00 980000.00 325000.00 110500.00 214500.00 1194500.00 2.49 2970721.50 Initial investment 2940000.00 NPV of project 30721.50 NPV of the project will be $ 30721.50 Working of depreciation Fixed assets 2940000.00 life 3 yrs Depreciation 2940000/3 980000.00 year

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