Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2761760 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 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?
Note: I calculated the year 3 answer to be 988204.5 and was marked incorrect.
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 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?
Years Cash Flow Year 0 $ Year 1 $ Year 2 $ Year 3 $Note: I calculated the year 3 answer to be 988204.5 and was marked incorrect.
Explanation / Answer
As you are facing problem in year 3 let us calculate for that only
Revenue 2080000 Cost 775000 Dpreciation n third year 399870 PBT 905130 Tax 316796 PAT 588335 dpreciation upto third year 92.59 BookValue ath end of third year 200070 Market value 210000 Cahflows(market Value- t*(market value -book value ) 206525 Release of working capital 300000 Total cashflows(PAT +Dep+ wc release+ cashflows froms ale 1494729Related Questions
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