Question

please answer CLEARLY

Calculating Project OCF H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.15 million. The fixed asset will be depreciated straight-line to zero over its three- year tax life, after which time it will be worthless. The project is estimated to generate $2.23 million in annual sales, with costs of $1.25 million. If the tax rate is 23 percent, what is the OCF for this project? Calculating Project NPV In the previous problem, suppose the required return on the project is 14 perecent. What LO2 9. LO2 10. is the project's NPV?

Answer 1

1
a	Initial Fixed asset Investment	$2,150,000.00
b	Useful Life	3
c	Depreciation	$716,666.67
d	Sales	$2,230,000.00
e	Cost	$1,250,000
f	Net Income before depreciation(d-e)	$980,000.00
g	Net Income after depreciation(f-c)	$263,333.33
h	Tax rate @ 23%on g	$60,566.67
i	Income after tax (g-h)	$202,766.67
j	Depreciation (Non cash outflow expense)	$716,666.67
i	Net Operating cash inflow (j+i)	$919,433.33
j	Total Net operating cash inflow (i*3 years)	$2,758,300.00
2
a	Initial Investment	$2,150,000.00
b	Annual cashinflow	$919,433.33
c	Discount rate	14%
d	Present value annuity factor (1/1+r)+1/(1+r)^2+1/(1+r)^3	2.3216
e	Present value of cashinflows (d*b)	$2,134,585.87
f	Net present value (e-a)	($15,414.13)