Question
In: Finance
Cocharen inc. is considering a new three-year expansion project that requires an initial fixed asset investment...
Cocharen inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $2,160,000. The fixed assets will be depreciated with bonus depreciation. At the end of the project's three-year life, the fixed asset is expected to be worthless. The project is estimated to generate $2,170,000 in annual sales, with operating costs of $1,160,000 per year. The firm's tax rate is 21% and the required return on the project is 11%. What is the project's payback period?
Solutions
Expert Solution
| Calculation of cash flows | |||||||
| Year 0 | Year 1 | Year 2 | Year 3 | ||||
| Initial investment | -2160000 | - | - | - | |||
| Sales | - | 2170000.00 | 2170000.00 | 2170000.00 | |||
| Less : Operating cost | - | -1160000.00 | -1160000.00 | -1160000.00 | |||
| Less : Bonus depreciation allowed | - | -2160000.00 | 0.00 | 0.00 | |||
| in year 1 | ___________ | _____________________________________ | |||||
| Annual Profit | - | -1150000.00 | 1010000.00 | 1010000.00 | |||
| Less : Tax | 21% | 241500.00 | -212100.00 | -212100.00 | |||
| ___________ | _____________________________________ | ||||||
| Profits after tax | -885000.00 | 797900.00 | 797900.00 | ||||
| Add : Depreciation (non-cash exp.) | |||||||
| (considered only for tax Purpose, so added back) | 2160000.00 | - | - | ||||
| ___________ | _____________________________________ | ||||||
| Cash flow | -2160000 | 1275000.00 | 797900.00 | 797900.00 | |||
| Cumulative cash flows | -2160000 | -885000.00 | -87100.00 | 710800.00 | |||
| ______________________________________________ | |||||||
| Payback period is period ot time, at which full value of investment is recovered. | |||||||
| Payback formula = Year in which cum. Cash flow become positive - (Cumulative cash flow of that year / Cash flow of that year | |||||||
| 4 Years - (710800/797900) | |||||||
| 3.109161549 | |||||||
| So, payback period of project is 3.11 Years. | |||||||
jeff jeffy answered 1 year agoRelated Solutions
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of
$2,610,000. The fixed asset will be depreciated straight-line to
zero over its three-year tax life. The project is estimated to
generate $2,320,000 in annual sales, with costs of $1,300,000. The
project requires an initial investment in net working capital of
$167,000, and the fixed asset will have a market value of $192,000
at the end of the project. Assume that the tax rate...
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Keiper, Inc., is considering a new three-year expansion project
that requires an initial fixed asset investment of $2.7 million.
The fixed asset falls into the three-year MACRS class. The project
is estimated to generate $2,080,000 in annual sales, with costs of
$775,000. The project requires an initial investment in net working
capital of $300,000, and the fixed asset will have a market value
of $210,000 at the end of the project. If the tax rate is 35
percent, what is...
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Keiper, Inc., is considering a new three-year expansion project
that requires an initial fixed asset investment of $2.7 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 $2,080,000 in annual sales, with
costs of $775,000. The project requires an initial investment in
net working capital of $300,000, and the fixed asset will have a
market value of $210,000 at the end...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of
$1,860,000. 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 $1,950,000 in
annual sales, with costs of $1,060,000. The project requires an
initial investment in net working capital of $150,000, and the
fixed asset will have a market value of $175,000 at the end of...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.37
million. The fixed asset falls into the three-year MACRS class
(MACRS Table). The project is estimated to generate $2,240,000 in
annual sales, with costs of $1,230,000. The project requires an
initial investment in net working capital of $159,000, and the
fixed asset will have a market value of $184,000 at the end of the
project. Assume that the tax rate is 35...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of
$1,860,000. 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 $1,950,000 in
annual sales, with costs of $1,060,000. The project requires an
initial investment in net working capital of $150,000, and the
fixed asset will have a market value of $175,000 at the end of...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of $2.37
million. The fixed asset falls into the three-year MACRS class
(MACRS Table). The project is estimated to generate $2,240,000 in
annual sales, with costs of $1,230,000. The project requires an
initial investment in net working capital of $159,000, and the
fixed asset will have a market value of $184,000 at the end of the
project. Assume that the tax rate is 35...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is
considering a new three-year expansion project that requires an
initial fixed asset investment of $1,860,000. 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 $1,950,000 in annual sales, with costs of $1,060,000. The
project requires an initial investment in net working capital of
$150,000, and the fixed asset will have a market value of $175,000
at the end of...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of
$1,860,000. 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 $1,950,000 in
annual sales, with costs of $1,060,000. Assume the tax rate is 35
percent and the required return on the project is 14 percent.
Required:
What is the project’s NPV?
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion
project that requires an initial fixed asset investment of
$2,310,000. The machine falls into the 3-year MACRS class. The
project is estimated to generate $2,220,000 in annual sales, with
costs of $1,210,000 per year. The project requires an initial
investment in net working capital of $157,000. The fixed assets are
expected to be sold for $182,000 at the end of the project. The
firm's tax rate is 21% and the required return...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- What is "intersectionality", and why is this a relevant concept in anthropology? Use examples in your...
- What are the differences between the economic theories and the reality of policy implementation?
- Designing A New Arena : You work for a company that has been tasked with designing...
- HOW DO YOU THINK HUMANS CAME TO HAVE LANGUAGE? WHAT IS THE DIFFERENCE BETWEEN HUMAN LANGUAGE...
- Gasoline is primarily a mixture of hydrocarbons and is sold with an octane rating that is...
- a) The electric potential at a position located a distance of 21.9 mm from a positive...
- Salivary amylase is a digestive enzyme which begins the digestion of ____ Proteins Starch Lipids Glucose...
ADVERTISEMENT