Question

1 points H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,400,000. 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 $2,530,000 in annual sales, with costs of $1,550,000. Assume the tax rate is 25 percent and the required return on the project is 10 percent. What is the project's NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Skipped Net present value eBook Hint

Answer 1

Calculation af Net Present Value (NPV) (Recquired Rate of Return = 10%. ) a) Sristial Domestament - $ 2,400,000 (Year O Cash Outflow / ist we Calculate Annual Depreciations Depreciation Boitial Spuestoset an Asset Life of the Asset = $2,400,000 3 $ 800,000

Now. Calculation of Annual Cash flow is Year 1 – 3 Annual Sales = $ 2.530.000 Less - Cost = ($1,550,000) Earning before depreciation S Tax & $ 980,000 Less : Depreciation = ($ 800.000) Carning Before tax = $ 180,000 lase (25% of 180.000) = ($ 45,000) Earning After Care - $ 135,000 Add - Depreciatian $ 800.000 Annual Cashflows = $. 935.000

by Year Annual Cashflaw's for Contiflaws of fater year. Cashflows Present Value @ 10%. 9.35.000 935.000 9.35,000 850,000 772,727027 702. 479.34 3 Present Salese of Annual = Cashflaws $2.325, 206.61 325, 206.61

so Net Present - Value Present Value of Annual Cashflaus's - Initial - Investment $ 2,400,000 = $ 235, 206.61 - - $ 74, 79339 Net Present Value of the Project is -$ 74, 793.39