Company Z is evaluating a project that will increase annual sales by $150,000 and annual cash...

Company Z is evaluating a project that will increase annual sales by $150,000 and annual cash costs by $115,000. The project will initially require $98,000 in fixed assets that will be depreciated straight-line to a zero book value over the 4-year life of the project. The applicable tax rate is 32 percent. What is the NPV of this project if the required rate of return is 7% and the fixed assets required for the project will be scrapped at the end of the project?

Expert Solution

Net Annual cash inflow
Sales	$ 1,50,000
Less:
Cash Cost	$ 1,15,000
Depreciation	$ 24,500
($98000/4)
Income for taxation	$ 10,500
Tax At 32%	$ 3,360
Income After Tax	$ 7,140
Add: Depreciation	$ 24,500
Net Annual Cash Inflow	$ 31,640

NPV = Present value of annual cash inflow - initial investment

= (Annual cash flow * PVAIF (4 years ,7%) - initial investment

=($31640*3.38721) -98000

=$9171.36



NPV =$9171.36

jeff jeffy answered 2 hours ago

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