Question

# Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...

Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of \$2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate \$2,070,000 in annual sales, with costs of \$765,000. The tax rate is 34 percent and the required return on the project is 13 percent. What is the project’s NPV? (Round your answer to 2 decimal places. (e.g., 32.16))

NPV??

#### Homework Answers

Answer #1

Project’s Net Present Value [ NPV] = \$78,145.51

 Particulars Amount (\$) Annual Sales 2,070,000 Less : Costs (765,000) Less: Depreciation [ \$26,70,000 / 3 Years ] (890,000) Net Income Before Tax 415,000 Less : Tax at 34% 141,500 Net Income After Tax 273,900 Add Back : Depreciation 890,000 Annual Cash Flow 1,163,900

Net Present Value [ NPV] = Present Value of Annual cash inflows – Initial Investments

= \$1,163,900 x [PVIF 13%, 3 Years] - \$26,70,000

= [\$1,163,900 x 2.361153 ] - \$26,70,000

= \$2,748,145.51 - 26,70,000

= \$78,145.51

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