Question

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

Answer #1

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

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project is estimated to generate $500,000 in annual sales, with
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