Question
Cochrane, Inc., is considering a new three-year fixed expansion project that requires an initial fixed asset investment of $1,860,000. The fixed asset will be depreciated
Cochrane, Inc., is considering a new three-year fixed expansion project that requires an initial fixed asset investment of $1,860,000. 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 $1,950,000 in annual sales, which costs of $1,060,000. If the tax rate is 35 percent.
In the previous problem, suppose the required return on the project is 14 percent. What is the project's NPV? | |||||||
NVP | |||||||
795500[1-(1.14)^-3]/0.14 | |||||||
795500*2.32163203 | |||||||
1846858.28-1,860,000 | |||||||
~$-13141.72 |
Suppose the project requires an initial investment in net working capital of $150,000, and the fixed asset will have a market value of $175,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV?
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