Question

A 10-yr project has an initial cost of $500,000 for fixed assets. The fixed assets will...

A 10-yr project has an initial cost of $500,000 for fixed assets. The fixed assets will be depreciated to a $0 book value using a 20-yr straight line depreciation method.

Each year, annual revenue is $60,000 and cost is $10,000.

After 10 years, you will terminate the project. You expect to sell the the fixed assets for $300,000.

The project is financed by 40% equity and 60% debt. The required rate of return on equity is 7% and the borrowing cost is 3%.

Assume the tax rate is 25%.

What is the project's NPV?

Group of answer choices

-51,056

21,937

29,441

43,662

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Homework Answers

Answer #1

Answer is 43662 approx ( can't match exact due to decimal)

Note : depreciation is tax deductible but not a cash flow so added back.

In year 10 tax is to be paid on 50000 gain so deductable.

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