XYZ Inc., is evaluating a new 3-year expansion that will require an initial fixed asset investment of
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Question:
XYZ Inc., is evaluating a new 3-year expansion that will require an initial fixed asset investment of $2.35 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The expansion is estimated to generate $1,780,000 in annual sales, with costs of $690,000. It requires an initial investment in net working capital of $400,000, and the fixed asset will have a market value of $400,000 at the end of the project.
a. Assuming the tax rate is 25 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3?
b. Assuming the required return is 10 percent, what is the project's NPV?
Related Book For
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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