Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fi xed asset investment of $2.7 million. The fi xed asset will
Keiper, Inc., is considering a new three-year expansion project that requires an initial fi xed asset investment of $2.7 million. The fi xed 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 $2,080,000 in annual sales, with costs of $775,000. If the tax rate is 35 percent, suppose that Keiper Incs three-year expansion project requires an initial net working capital investment of $300,000 and the fixed asset will now have a market value of $210,000 at the of the project. What would be the NPV of the project under this new scenario? Assuming that the required return on the companys new three-year expansion project is 12%, what would be the projects Net Present Value (NPV?
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