Marshall Communications, Inc. is considering a new 5-year expansion project that
ID: 2763580 • Letter: M
Question
Marshall Communications, Inc. is considering a new 5-year expansion project that requires an initial fixed asset investment of $2,484,000. The fixed asset will be depreciated straight-line to zero over a 5-year life, after which time it is anticipated the asset will be worthless. The project is estimated to generate $2,208,000 in annual sales, with costs of $883,200. The tax rate is 33 percent and the required return on the project is 9 percent. What is the net present value for this project?
$1,606,202
$1,598,040
$1,533,627
$1,233,867
$1,051,560
a.)$1,606,202
b.)$1,598,040
c.)$1,533,627
d.)$1,233,867
e.)$1,051,560
Explanation / Answer
Depreciation = 2484000/5 = $ 496800 Sales Costs Net Income After Tax Depreciation Savigs in tax Cash Inflow Discount Total ( Net Incoem(1-.33) Depreciation*33% 887616+163944 2208000 883200 1324800 887616 496800 163944 1051560 0.917431 964733.9 2208000 883200 1324800 887616 496800 163944 1051560 0.84168 885077 2208000 883200 1324800 887616 496800 163944 1051560 0.772183 811997.3 2208000 883200 1324800 887616 496800 163944 1051560 0.708425 744951.6 2208000 883200 1324800 887616 496800 163944 1051560 0.649931 683441.8 4090202 Present value = Cash Inflows- Cash Outflows 4090202-2484000 = $ 1606202 The correct option is SA. $ 1606202
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