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Simmons, Inc., is considering a new 4-year project that requires an initial fixed asset investment of...

Simmons, Inc., is considering a new 4-year project that requires an initial fixed asset investment of $2.75 million. The fixed asset is eligible for 100 percent bonus depreciation in the first year. At the end of the project, the asset can be sold for $390,000. The project is expected to generate $2.55 million in annual sales, with annual expenses of $905,000. The project will require an initial investment of $440,000 in NWC that will be returned at the end of the project. The corporate tax rate is 22 and the project has a required return of 13 percent. What is the NPV of the project

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Answer #1
Annual Operating cashflows
Annual revenues 2550000
Less: Annual cost 905000
Annual income before tax 1645000
Less: tax @ 22% 361900
After tax Income 1283100
Annual Operating cashflows 1283100
Multiply: Annuity PVF at13% for 4yrs 2.97447
Present value of inflows 3816542
tax shield on dep (2750000*22%)0.884956 535398.4
WC investment release (440000*0.613319) 269860.4
After tax salvage (390000*78%*0.613319) 186571.6
Total inflows 4808373
Less: Investment (2750000+440000) -3190000
NPV 1618373
Answer is 1618373
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