Question
A company is trying to decide whether it should accept or reject a new 3-year project. If accepted, the project requires an immediate investment into
A company is trying to decide whether it should accept or reject a new 3-year project. If accepted, the project requires an immediate investment into fixed assets in the amount of $5.9 million. These fixed assets fall into the 3-year MACRS class (MACRS Table). At the end of the project they are expected to have a market value of $462,000, and this will take place after 3 years since the launch of the project. It would also be necessary to invest into cash and other types of net working capital in the amount of $660,000. The company believes that the project will be able to generate $5,280,000 in annual sales revenues, and that the annual costs of goods sold will equal $2,112,000. The corporate tax rate is 34 percent. The annual rate of return that is required for this project is 13 percent. (Do not round your intermediate calculations.) |
Required: | |
(a) | What is the project's year 0 total cash flow? |
(Click to select) -6,232,000 -5,904,000 -6,560,000 -2,621,506 -2,483,532 |
(b) | What is the project's estimated year 1 total cash flow? |
(Click to select) 3,035,428 2,759,480 2,621,506 2,483,532 2,897,454 |
(c) | What is the project's estimated year 2 total cash flow? |
(Click to select) 2,982,547 3,131,674 2,483,532 2,897,454 2,833,420 |
(d) | What is the project's estimated year 3 total cash flow? |
(Click to select) 3,151,380 3,676,610 3,326,457 2,897,454 3,501,533 |
(e) | Based on the above, calculate the Net Present Value of this project. |
(Click to select) 532,771 13,075,711 676,754 644,527.47 612,301 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started