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?

Group of answer choices

$302,570

$170,518

-$321,878

Homework Answers

Answer #1
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

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