Question
In: Finance
Down Under Boomerang, Inc., is considering a new 3-yearexpansion project that requires an initial fixed...
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.34 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which it will be worthless. The project is estimated to generate $1,740,000 in annual sales, with costs of $650,000. The tax rate is 21 percent and the required return is 11 percent. What is the project’s NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Solutions
Expert Solution
Depriciation = 2,340,000 /3 = 810,000
Cash Flow = (Sales - costs - Depriciation - taxes) + Depriciation
Annual Cash Flow = (1,740,000 - 650,000 - 810,000 - 21% * (1,740,000 - 650,000 - 810,000)) + 810,000
= 1,031,200
Present Value of Cash Inflow = Annual Cash Flow * PVAF (11%, 3 years)
= 1,031,200 * 2.44371471543
= 2,519,958.61
NPV = 2,519,958.61 - 2,340,000 = 179,958.61
jeff jeffy answered 2 years agoRelated Solutions
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