Litchfield Design is evaluating a 3-year project that would involve buying a new

Question

Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 270,000 dollars today. The equipment would be depreciated straight-line to 40,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 54,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 192,000 dollars and relevant costs are expected to be 56,000 dollars. The tax rate is 50 percent and the cost of capital for the project is 10.47 percent. What is the NPV of the project?

Explanation / Answer

Solution.

Assumption.

Ewuipment depreciate 40,000 dollar per year.

Revenues     192,000.00 Costs     (56,000.00) Gross profit     136,000.00 Depreciation     (40,000.00) EBIT        96,000.00 Tax rate 50%     (48,000.00) EAT        48,000.00 Depreciation        40,000.00 Net inflow        88,000.00

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.