Calculating NPV AND PROJECT CASH FLOW FROM ASSETS
Question # 00483366
Posted By:
Updated on: 02/12/2017 10:54 PM Due on: 02/12/2017
Calculating Project NPV: Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1.65 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $1.24 million in annual sales, with costs of $485,000. The tax rate is 35 percent and the required return is 12 percent. What is the project’s NPV?
Calculating Project Cash Flow from Assets: In the previous problem (above), suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. What is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV?
*also explain your understanding and rationale for using the equations and calculations.
(Additional information as I've done the HW, but I am not sure of my correctness of my answers.):
I've completed the project, however I would like to double check my answers, I am looking online and the solutions reached for these problems are all different. For part one, I got the NPV = -$8,948.79.
net cash flow = $683,250. Depreciation = 550,000.
For the second part, for year 0 net cash flow, i got -$1,935,000. NPV = $13,006.45. However, I am not sure these are correct responses.
-
Rating:
/5
Solution: Calculating NPV AND PROJECT CASH FLOW FROM ASSETS