Question
Sester Corporation has provided the following information concerning a capital budgeting project: Investment required in equipment $ 750,000 Net annual operating cash inflow $ 360,000
Sester Corporation has provided the following information concerning a capital budgeting project:
Investment required in equipment | $ | 750,000 | |
Net annual operating cash inflow | $ | 360,000 | |
One-time renovation expense in year 2 | $ | 70,000 | |
Tax rate | 30 | % | |
After-tax discount rate | 7 | % | |
The expected life of the project and the equipment is 3 years and the equipment has zero salvage value. The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $250,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses.
Click here to view Exhibit 13B-1, to determine the appropriate discount factor(s) using the table provided.
Required:
Determine the net present value of the project. Prepare an excel worksheet and then paste it into the blank answer box.
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