Question: Chegg is considering a new 3 - year - long project that would involve using specialized scanning software to scan submitted screenshots in low resolution

Chegg is considering a new 3-year-long project that would involve using specialized scanning software to scan submitted screenshots in low resolution and convert them into high resolution text documents that there's currently a strong market for.
Chegg requires a 14 percent annual return on this uncertain project, high enough to compensate for the underlying uncertainty of future cash inflows.
Chegg pays taxes on its annual income and other taxable cash flows according to a 25 percent tax rate.
Chegg estimates $5,376,000 in sales revenues and $2,150,400 in operating costs each year of the project.
A decision to accept the project would be followed by an immediate investment of $6.048 million into purchasing the software with an economic life of 3 years. Like other similar software, its value will be dropping over its economic life at a constant annual rate. At the end of the project Chegg is hoping to be able to find a different company in similar line of business that would be willing to pay $470,400 for the software and its future ownership.
Chegg would also need to spend $672,000 right away to build a cash buffer that would be used to draw the funds to cover the expenses to quickly hire specialists to fix any unfor bugs that may arise throughout the life of the project.
The project's total cash flow in "Year 0"=
 Chegg is considering a new 3-year-long project that would involve using

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!