Question

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

XY Inc. is considering a three-year project. The initial investment on the fixed asset will be \$90,000. Fixed asset will be depreciated using straight-line method to zero over the life of the project. The net working capital investment will be \$50,000. The project is estimated to generate \$200,000 in annual sales, with cost of \$150,000. Assume the tax rate is 35% and required return is 10%, what is the NPV of this project?

\$-33,065

\$30,971

\$15,428

Initial cash outflow = Fixed investment + Net working capital investment

= \$90000+\$50000

= \$140000

Annual depreciation = \$90000/3

= \$30000

After tax operating cash flow = (Sales - Cost - Depreciation)*(1-Tax rate) + Depreciation

= (\$200000 - \$150000 - \$30000)*(1-0.35) + \$30000

= \$20000*(1-0.35) + \$30000

= \$43000

NPV is calculated in excel below

Therefore, the correct option is \$-33065

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Need Online Homework Help?

Most questions answered within 1 hours.