Virtual Ventures is considering a new three-year expansion project that requires an initial fixed asset investment...
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Virtual Ventures is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate EBIT of $326,667. There is no interest expense. Operating Cash Flow remains constant throughout the project. The project requires an initial investment in net working capital of $260,000, which will be recovered at the end of the project. The fixed asset will have a market value of $195,000 at the end of the project. The tax rate is 21 percent. The required return (or discount rate) is 9 percent. COMPLETE PARTS a, b, and fa a. Calculate Operating Cash Flow (OCF) (Write your answer on the line above) Show your work below: = (1 point) b. Calculate After-tax Salvage Value = (Write your answer on the line above) Show your work below: c. Complete the table below to calculate Free Cash Flow (FCF) 0 OCF NCS NWC FCF (No work needed.) 2 3 (1 point) (5 points) d. Calculate NPV = e. Calculate IRR = Show your work below. (1 point) (1 point) f. Should the project be accepted? Why? (Write your answer on the line above and explanation in the space below). (1 point) Virtual Ventures is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate EBIT of $326,667. There is no interest expense. Operating Cash Flow remains constant throughout the project. The project requires an initial investment in net working capital of $260,000, which will be recovered at the end of the project. The fixed asset will have a market value of $195,000 at the end of the project. The tax rate is 21 percent. The required return (or discount rate) is 9 percent. COMPLETE PARTS a, b, and fa a. Calculate Operating Cash Flow (OCF) (Write your answer on the line above) Show your work below: = (1 point) b. Calculate After-tax Salvage Value = (Write your answer on the line above) Show your work below: c. Complete the table below to calculate Free Cash Flow (FCF) 0 OCF NCS NWC FCF (No work needed.) 2 3 (1 point) (5 points) d. Calculate NPV = e. Calculate IRR = Show your work below. (1 point) (1 point) f. Should the project be accepted? Why? (Write your answer on the line above and explanation in the space below). (1 point)
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