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As soon as possible please show a brief work and final answer. Thank u! Astronomic, Inc., is considering an investment of $500,000 in an asset
As soon as possible please show a brief work and final answer. Thank u!
Astronomic, Inc., is considering an investment of $500,000 in an asset to be used in a project with an eight-year life. For income tax purposes, the company will use the straight-line method to depreciate its asset to a zero residual value over ten years, not eight. However, the economic salvage value of the asset is estimated to be $50,000 at the project's end. The firm estimates that the nominal annual cash revenues at the end of the first year will be $265,000 and will grow at the annual inflation rate of 3 percent. The first year's nominal cash expenses will be $85,000 but they will increase at an annual rate of 5 percent over the life of the project. At the beginning of the project, Astronomic must acquire $25,000 of working capital and maintain this balance at all times. However, the working capital will be worth only $10,000 at the end of the project. Finally, Astronomic must pay the $15,000 bill submitted by its accounting firm for providing all of the numbers for this project. The company's average income tax rate is 25 percent, it marginal income tax rate is 30 percent and its real cost of capital, or minimum acceptable rate of return, is 14 percent. Required: Determine the project's net present value. Astronomic, Inc., is considering an investment of $500,000 in an asset to be used in a project with an eight-year life. For income tax purposes, the company will use the straight-line method to depreciate its asset to a zero residual value over ten years, not eight. However, the economic salvage value of the asset is estimated to be $50,000 at the project's end. The firm estimates that the nominal annual cash revenues at the end of the first year will be $265,000 and will grow at the annual inflation rate of 3 percent. The first year's nominal cash expenses will be $85,000 but they will increase at an annual rate of 5 percent over the life of the project. At the beginning of the project, Astronomic must acquire $25,000 of working capital and maintain this balance at all times. However, the working capital will be worth only $10,000 at the end of the project. Finally, Astronomic must pay the $15,000 bill submitted by its accounting firm for providing all of the numbers for this project. The company's average income tax rate is 25 percent, it marginal income tax rate is 30 percent and its real cost of capital, or minimum acceptable rate of return, is 14 percent. Required: Determine the project's net present valueStep by Step Solution
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