Cochrane, Inc., is considering a new three-year expansion project that requires
ID: 2758460 • Letter: C
Question
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,130,000. The fixed asset falls into the three-year MACRS class (MACRS Table). The project is estimated to generate $2,160,000 in annual sales, with costs of $1,150,000. The project requires an initial investment in net working capital of $151,000, and the fixed asset will have a market value of $176,000 at the end of the project. Assume that the tax rate is 30 percent and the required return on the project is 14 percent. What is the net cash flow of the project for the following years? NPV of project????
Explanation / Answer
Annual Sale 2160000 Less: Cost 1150000 1010000 Less: Tax 303000 Profit After Tax 707000 Value Tax Rate Depriciatin Total Dep Remaining Value 2130000 33.33% 709929 709929 1420071 2130000 45.45% 968085 1678014 451986 2130000 rmaining 275986 1954000 176000 Year 0 Year 1 Year 2 Year 3 Initital Investment -2130000 -151000 PAT 707000 707000 707000 Add:DTS Depri*Tax rate 212978.7 290425.5 82795.8 cash flow After DTS -2281000 919978.7 997425.5 789795.8 Add:Realese of working Capital 151000 Add: Salvage Value 176000 Net Cash Flow -2281000 919978.7 997425.5 1116796 PV Factor@14 1 0.877193 0.76946753 0.674972 PV OF cash Flow -2281000 806998.86 767486.534 753805.4 NPv 47290.74838