Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment
Question:
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $4.698 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $4,176,000 in annual sales, with costs of $1,670,400. Required: If the tax rate is 35 percent, what is the OCF for this project?
Dog Up! Franks is looking at a new sausage system with an installed cost of $241,800. This cost will be depreciated straight-line to zero over the project's 8-year life, at the end of which the sausage system can be scrapped for $37,200. The sausage system will save the firm $74,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $17,360. |
Required: |
If the tax rate is 33 percent and the discount rate is 15 percent, what is the NPV of this project? |
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan