Question

# XYZ Inc. is considering a three-year project. The initial investment on the fixed asset will be...

XYZ Inc. is considering a three-year project. The initial investment on the fixed asset will be \$900,000. Fixed asset will be depreciated using straight-line method to zero over the life of the project. The net working capital investment will be \$250,000. The project is estimated to generate \$500,000 in annual sales, with cost of \$150,000. Assume the tax rate is 34% and required return is 10%, what is the NPV of this project?

\$302,570

\$170,518

-\$321,878

 Initial Investment 900000 NWC 250000 Initial outflow 1150000 Depreciation amount 300000 Initial investment / no of years
 Year sales cost Depreciation EBIT Tax EBT Depreciation NOPAT PV of cashflow discount at 10% 1 500000 150000 300000 50000 17000 33000 300000 333000 \$302,727.27 2 500000 150000 300000 50000 17000 33000 300000 333000 \$275,206.61 3 500000 150000 300000 50000 17000 33000 300000 333000 \$250,187.83 3 250000 \$187,828.70 Pv of cashflow \$1,015,950.41

net working capital is recovered at end of 3 year
NPV = Pv of inflow - ouflow
NPV = 1015950.41 - 1150000
NPV = -134050

Note - Pv of cashflow is calculated as -
=PV(rate,nper,pmt,[fv],type)
Tax is calculated on EBIT @ 34%
NOPAT = EBT + Depreciation

#### Earn Coins

Coins can be redeemed for fabulous gifts.