Question

You are evaluating a capital project with a Net Investment of $95,000, which includes an increase in net working capital of $5,000. The project has a life of 9 years with an expected salvage value of $3,000. The project will be depreciated via simplified straight-line depreciation. Revenues are expected to increase by $20,000 per year and operating expenses by $4,000 per year. The firm's marginal tax rate is 40 percent and the cost of capital for this project is 8%. What is the net present value of this project? Round to the nearest penny. Do not include a dollar sign.

Answer #1

Initial investment = 95,000

Cash flow from year 1 to 8

Sale = 20,000

(-) cost = (4,000)

EBITDA= 16,000

(-) depreciation = (9,666.67)

EBT = 6,333.33

(-) Tax = (2,533.33)

Net profit = 3,800

+ depreciation = 9,666.67

Operating cash flow = 13,466.67

Note:- Depreciation= 95,000 - 5,000 - 3,000 / 9

= 87,000 / 9

= 9,666.67

Cash flow in year 9

= Operating cash flow of year 8 + working capital + 3,000 ( 1-tax rate)

= 13,466.67 + 5,000 + 3,000 (1-0.40)

= 18,466.67 + 3000 (0.60)

= 18,466.67 + 1,800

= 20,266.67

Using financial calculator to calculate the net present value

Inputs: C0= -95,000

C1= 13,466.67 Frequency= 8

C2= 20,266.67 Frequency= 1

I= 8%

Npv= compute

We get, net present value of the project as
**-7,473.53**

You are evaluating a capital project with a Net Investment of
$95,000, which includes an increase in net working capital of
$5,000. The project has a life of 9 years with an expected salvage
value of $3,000. The project will be depreciated via simplified
straight-line depreciation. Revenues are expected to increase by
$20,000 per year and operating expenses by $4,000 per year. The
firm's marginal tax rate is 40 percent and the cost of capital for
this project is 8%....

You are evaluating a capital project with a net investment of
$95,000, which includes an increase in net working capital of
$5,000. The project has a life of nine years and an expected
salvage value of $3,000. The project will be depreciated via
simplified straight-line depreciation. Revenues are expected to
increase by $20,000 per year and operating expenses by $4,000 per
year. The firm’s marginal tax rate is 40%, and the cost of capital
for this project is 8%. What...

You are evaluating a capital project with a Net Investment of
$400,000, which includes an increase in net working capital of
$16,000. The project has a life of 12 years with an expected
salvage value of $3,000. The project will be depreciated via
simplified straight-line depreciation. Revenues are expected to
increase by $90,000 per year and operating expenses by $8,000 per
year. The firm's marginal tax rate is 40 percent and the cost of
capital for this project is 15%....

You are evaluating a capital project with a Net Investment of
$400,000, which includes an increase in net working capital of
$16,000. The project has a life of 12 years with an expected
salvage value of $3,000. The project will be depreciated via
simplified straight-line depreciation. Revenues are expected to
increase by $90,000 per year and operating expenses by $8,000 per
year. The firm's marginal tax rate is 40 percent and the cost of
capital for this project is 15%....

You are evaluating a capital project with a Net Investment of
$800,000, which includes an increase in net working capital of
$8,000. The project has a life of 20 years with an expected salvage
value of $100,000. The project will be depreciated via simplified
straight-line depreciation. Revenues are expected to increase by
$120,000 per year and operating expenses by $14,000 per year. The
firm's marginal tax rate is 40 percent and the cost of capital for
this project is 12%....

You are evaluating a capital budgeting replacement project with
a net investment of $85,000, which includes both an after-tax
salvage from the old asset of $5,000 and an additional working
capital investment of $10,000. The expected annual incremental cash
flows after-tax is $14,000. The project has a life of 9 years with
an expected terminal value at the end of the project of $13,000.
The cost of capital of the firm is 10 percent and the firm’s
marginal tax rate...

14: A firm is evaluating a new capital project. The firm spent
$45,000 on a market study and $30,000 on consulting three months
ago. If the firm approves the project, it will spend $448,000 on
new machinery, $15,000 on installation, and $5,000 on shipping. The
machine will be depreciated via simplified straight-line
depreciation over its 8-year life. The expected sales increase from
this new project is $700,000 a year, and the expected incremental
expenses are $250,000 a year. In order...

show work on how to get the answer
Your company is evaluating a capital project with equipment
costing $120,600. Shipping costs are estimated at $2000 and
installation is expected to be $1300. This equipment has an
expected life of 18 years and a salvage value of $1400. Revenues
are expected to increase by $15,000 per year and cash operating
expenses by $500 per year. An additional working capital investment
of $900 is also required, and the firm’s marginal tax rate...

You are a project manager. You are estimating cash flows of a
potential project that requires investment of $250,000 in a
machine, including installation cost, and $40,000 in working
capital which will be fully captures at the end of the project. The
marchine has the estimated life of 5 years and will be depreciated
vie simplified straight-line method. The project is expected to
raise the firm's revenues by $330,000 and costs by $125,000
annually. Since the trend of the product...

You are a project manager. You are estimating cash flows of a
potential project that requires investment of $250,000 in a
machine, including installation cost, and $40,000 in working
capital which will be fully captures at the end of the project. The
marchine has the estimated life of 5 years and will be depreciated
vie simplified straight-line method. The project is expected to
raise the firm's revenues by $330,000 and costs by $125,000
annually. Since the trend of the product...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 35 minutes ago

asked 39 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago