Question: A company is trying to decide whether it should accept or reject a new 3 year project. If accepted, the project requires an immediate investment
A company is trying to decide whether it should accept or reject a new 3 year project. If accepted, the project requires an immediate investment into fixed assets in the amount of $5.0 million. These fixed assets fall into the 3-year MACRS class (MACRS Table). At the end of the project they are expected to have a market value of $386,400, and this will take place after 3 years since the launch of the project. It would also be necessary to invest into cash and other types of net working capital in the amount of $552,000. The company believes that the project will be able to generate $4.416,000 in annual sales revenues, and that the annual costs of goods sold will equal $1.766,400. The corporate tax rate is 31 percent. The annual rate of return that is required for this project is 8 percent. (Do not round your intermediate calculations.) Required: (a)What is the project's year 0 total cash flow? (Click to select) (b)What is the project's estimated year 1 total cash flow? 2.344,839 (c)What is the project's estimated year 2 total cash flow? (Click to select) (d)What is the project's estimated year 3 total cash flow? (Click to select) (e)Based on the above, calculate the Net Present Value of this project. (Click to select) Property Class Three-Year Five-Year Year Seven-Year 1 33.33% 20.00% 14.29% 2 44.45 32.00 24.49 3 14.81 19.20 17.49 4 7.41 11.52 12.49 5 11.52 8.93 6 5.76 8.92 7 8.93 8 4.46
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
