Question
CH 9 Drill 1. Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,610,000. The fixed asset
CH 9 Drill
1.
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,610,000. 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 $2,320,000 in annual sales, with costs of $1,300,000. The project requires an initial investment in net working capital of $167,000, and the fixed asset will have a market value of $192,000 at the end of the project. Assume that the tax rate is 40 percent and the required return on the project is 6 percent.
Requirement 1: |
What are the net cash flows of the project for the following years? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567).) List cash flow for 0-3 years. |
What is the NPV of the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)
2. Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,170 per unit; variable cost = $390 per unit; fixed costs = $4.90 million; quantity = 80,000 units. Suppose the company believes all of its estimates are accurate only to within 15 percent.
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