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1. Firm AAA is considering a new t hree-year new project that requires an initial fixed asset inves fixed asset will be depreciated straight -ine to zero over it tment of $2.28 million. The r tax life, after which time it will be worthless. The project is estimated 735,000 T working capital of $260,000, to generate $2,040,000 in annual sales, with costs of he project requires an initial investment in net and the fixed asset will have a market value of $280,000 at the end of the project if the tax rate is 34 percent, what is the projects year O net cash low? Year 17 Year 27 Year 37 Should the firm acce the required return rate is 15%? the project if
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Computation of Projects Cash Flow an d NPV After tax Salvage Value Annual sales reciation | Before Tax Income | Tax @ 34% After Tax Income! Add De Projects Cash ΓΙ0w! Present Value @ 15% | Discounted Cash Flow 25,40,000.00 18,17,304.35 15,80,264.65 16,66,606.39 25,24,175.39 Year Investment Working Ca Costs $-25,40,000.00 60,000.00 20,89,900.00 13,29,900.00$7,60,0000O20,89,900.00 25,34,700.00 22,80,000.00 2,60,000.00 1.00000 $ 20,15,000.00 $6,85,100.00 $20,40,000.00 $7,35,000.00 -7,60,000.0020,15,000.00 $6,85,100.00 1,94,800.00$20,40,000.00$7,35,000.007,60,000.00 20,15,000.00 $6,35,100.00 $20,40,000.00 $7,35,000.00 $-7,60,000.00 13,29,900.00 2,60,000.00 900.00 7,60,000.00 0.65752 Net Present Value

Project Cash Flow for Year 0 = -$ 2540000

Project Cash Flow for Year 1 = $ 2089900

Project Cash Flow for Year 2 = $ 2089900

Project Cash Flow for Year 3 = $ 2534700

As the NPV is Positive it is recommended to invest in the project

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