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??
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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