Keiper, Inc., is considering a new three-year expansion project that requires an
ID: 2637771 • Letter: K
Question
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. 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 $2,070,000 in annual sales, with costs of $765,000. The tax rate is 34 percent and the required return on the project is 13 percent. What is the project
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. 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 $2,070,000 in annual sales, with costs of $765,000. The tax rate is 34 percent and the required return on the project is 13 percent. What is the project
Explanation / Answer
Answer:
Calculating cash flows
Calculating NPV
Net Present value = Present value of cash flows - Initila investment
= 2748146 - 2670000
= 78145.51
Annual sales 2070000 Cost 765000 EBIT 1305000 Depreciation 890000 EBT 415000 Tax @ 34% 141100 EAT 273900 Add: Depreciation 890000 Cash flow 1163900