Question

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??

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