Consider the following 12-year investment project: Initial fixed capital outlay of $1.5 billion; straight-line depreciation is...

 

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Consider the following 12-year investment project: Initial fixed capital outlay of $1.5 billion; straight-line depreciation is over a six-year period with zero salvation value; the capital equipment will be sold for $0.5 billion at the end of 12th year. Net working capital required is $0.4 billion. The project will reduce cash operating expenses by $0.35 billion per year and generate additional annual revenue of $0.1 billion. The tax rate is 40%; the required rate of return is 12%. Calculate the after-tax cash flow for t=0,..., 12 What is the NPV of the project? What is the impact (i.e., positive or negative) of a reduction in the tax rate from 40% to 0% on the NPV? Consider the following 12-year investment project: Initial fixed capital outlay of $1.5 billion; straight-line depreciation is over a six-year period with zero salvation value; the capital equipment will be sold for $0.5 billion at the end of 12th year. Net working capital required is $0.4 billion. The project will reduce cash operating expenses by $0.35 billion per year and generate additional annual revenue of $0.1 billion. The tax rate is 40%; the required rate of return is 12%. Calculate the after-tax cash flow for t=0,..., 12 What is the NPV of the project? What is the impact (i.e., positive or negative) of a reduction in the tax rate from 40% to 0% on the NPV?

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To calculate the aftertax cash flows for each year we need to consider the impact of taxes on both the additional revenue and the cash operating expen... View the full answer