Chegg is considering a new 3-year-long project that would involve using specialized scanning software to scan...
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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 16 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 22 percent tax rate. . Chegg estimates $2,352,000 in sales revenues and $940,800 in operating costs each year of the project. A decision to accept the project would be followed by an immediate investment of $2.646 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 $205,800 for the software and its future ownership. • Chegg would also need to spend $294,000 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 unforeseen software bugs that may arise throughout the life of the project. The project's total cash flow in "Year 0" = The project's total cash flow in "Year 1" = The project's total cash flow in "Year 2" = The project's total cash flow in "Year 3" =, The project's Net Present Value = 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 16 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 22 percent tax rate. . Chegg estimates $2,352,000 in sales revenues and $940,800 in operating costs each year of the project. A decision to accept the project would be followed by an immediate investment of $2.646 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 $205,800 for the software and its future ownership. • Chegg would also need to spend $294,000 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 unforeseen software bugs that may arise throughout the life of the project. The project's total cash flow in "Year 0" = The project's total cash flow in "Year 1" = The project's total cash flow in "Year 2" = The project's total cash flow in "Year 3" =, The project's Net Present Value =
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SOLUTION To calculate the projects total cash flow and net present value we need to take into accoun... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780132745659
8th Edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
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