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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