Question
Tech Enterprises is considering a new project that will require an initial investment of$255,000for fixed assets,$16,000forinventory,and$35,000foraccounts receivable.Short-term debt is expected to increase by$100,000.The project has
Tech Enterprises is considering a new project that will require an initial investment of$255,000for fixed assets,$16,000forinventory,and$35,000foraccounts receivable.Short-term debt is expected to increase by$100,000.The project has a life of5years.
The fixed assets will be depreciated straight-line to a zero book value over threeyears.The firm expects that at the end of year3an additional investment into fixed assets of$120,000will be required.These new assets will again be depreciated straight line to zero over threeyears.At the end of the project,the firm expects to be able to sell the remaining fixed assets for$115,000.
The project is expected to generate annual sales of$544,000with costs of$430,000.The tax rate is21percent and the required rate of returnis15percent.Whatis the net present value of this project?
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