Cochrane, Inc., is considering a new three-year expansion project that requires
ID: 2762847 • Letter: C
Question
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,550,000. 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 $2,300,000 in annual sales, with costs of $1, 290,000. Assume the tax rate is 35 percent and the required return on the project is 7 percent. Required: What is the project's NPV? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars (e.g., 1, 234,567).Explanation / Answer
Yr Particulars Cash Inflow Cash Outflow Earning Before Tax & Depreciation Depreciation Earning Before Tax Tax Earning After Tax Cash Flow (Earning after Tax + Depreciation) PVF@ 7% PV 0 Initial Outlay 2550000 EBT * 35% EBT- Tax -2550000 1 -2550000 1 Sales & Cost 2300000 1290000 1010000 850000 160000 56000 104000 954000 0.934579 891588.8 2 Sales & Cost 2300000 1290000 1010000 850000 160000 56000 104000 954000 0.873439 833260.5 3 Sales & Cost 2300000 1290000 1010000 850000 160000 56000 104000 954000 0.816298 778748.2 NPV -46402.5