* Most Visited Getting Started My USC Aiken-Black The True Story of Poca connect
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* Most Visited Getting Started My USC Aiken-Black The True Story of Poca connect. 2017 (AL BADM 363 Business Finan FINANCE estructions I help Exam #5 (Chapters 9 & 11) Queson 36 (ot 40 36 inweslment of $2 520,000 The fixed asset wil be depreciated straght Ine to zero over ts three year tax lile. The project s estimated to generate H. Cochran, Inc, is considering a new three-year expansion projedt that requires an initial fixed asset $2,290,000 in annual sales, with costs of $1,280 000 The project requires an the requred return on the project is 7 perc s 40 percent and initisl investment in rnel working captal of $164,000 and the fixed asset will haws a market vealue of $189,000 at the and of the project Assume that the tex rateis Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your What are the net cash flaws of the project each year? (A negative answer answers to the nearest whole number,eg, 321 ulations and round your answer to 2 decimal places, e.g., 32.16.) what is the NPV of the porect?Enter your answer ons of dollars, ea., 1,234,567. Do not round intermediate calcu NPV 2/16/20179 odeExplanation / Answer
a. Net Cash flows: Year Cash flow 0 $ -26,84,000 1 $ 9,42,000 2 $ 9,42,000 3 $ 12,19,400 Working: 1) Year 0 Cash flow: Initial fixed aasset Investment $ 25,20,000 Investment in Net working Capital $ 1,64,000 Cash flows $ 26,84,000 2) Year 1 2 3 Sales $ 22,90,000 $ 22,90,000 $ 22,90,000 Cost $ -12,80,000 $ -12,80,000 $ -12,80,000 Depreciation $ -8,40,000 $ -8,40,000 $ -8,40,000 Income before tax $ 1,70,000 $ 1,70,000 $ 1,70,000 Tax Expenses $ -68,000 $ -68,000 $ -68,000 Net Income $ 1,02,000 $ 1,02,000 $ 1,02,000 Depreciation $ 8,40,000 $ 8,40,000 $ 8,40,000 Opearing cash flow $ 9,42,000 $ 9,42,000 $ 9,42,000 Sales of Fixed assets $ 1,13,400 Release of Working Capital $ 1,64,000 Cash Flows $ 9,42,000 $ 9,42,000 $ 12,19,400 3) Straight Line depreciation = (Cost-salvage)/Useful Life = (2520000-0)/3 = $ 8,40,000 4) After Tax sale proceeds of fixed assets = 189000*(1-0.40) = $ 1,13,400 b. NPV $ 14,547 Working: Year Cash flow Discount factor Present Value 0 $ -26,84,000 1.0000 $ -26,84,000 1 $ 9,42,000 0.9346 $ 8,80,374 2 $ 9,42,000 0.8734 $ 8,22,779 3 $ 12,19,400 0.8163 $ 9,95,394 NPV $ 14,547
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