Question

H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,400,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $3,030,000 in annual sales, with costs of $2,030,000. The project requires an initial investment in net working capital of $168,000 and the fixed asset will have a market value of $203,000 at the end of the project. Assume that the tax rate is 23 percent and the required return on the project is 10 percent.
a.	What are the net cash flows of the project each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
b.	What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
	a. Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $427,000 is estimated to result in $160,000 in annual pretax cost savings. The press is eligible for 100 percent bonus depreciation and it will have a salvage value at the end of the project of $61,000. The press also requires an initial investment in spare parts inventory of $16,600, along with an additional $3,600 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 8 percent. Calculate the project's NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1