Question

10 Problem 9-13 NPV and Bonus Depreciation [LO 2] H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.15 million. The fixed asset qualifies for 100 percent bonus depreciation. The project is estimated to generate $2.23 million in annual sales with costs of $1.25 million. The project requires an initial investment in net working capital of $150,000, and the fixed asset will have a market value of $185,000 at the end of the project. Assume that the tax rate is 23 percent and the required return on the project is 14 percent. 4.16 polnts 02:07:24 Skipped a. What is the net cash flow of the project for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest dollar, 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.) eBook Print References Year 0 cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow b. NPV

Answer 1

Working After-tax PVIF@ Net Net cash Таx@23% capital flow 14% Present value Year Revenue Costs РBT income OCF Investment (150,000) $(1,717,100) $(1,867,100)1.000 -$1,867,100.00 $661,929.82 $580,640.20 $706,728.93 0 1,250,000 980,000 $225,400 $754,600 754,600 $ 1,250,000 980,000$225,400$754,600 $ 754,600 $ 1,250,000 $980,000$225,400 $754,600 $ 754,600 $ 150,000$ 142,4501,047,050 1 $2,230,000 $ 2 $ 2,230,000 $ 3$2,230,000 $ $ 754,600 $ 0.877 754,600 0.769 0.675 $82,198.95 Net present value $2,230,000 $2,230,000 $ Asset cost Less: Depreciation charged WDV at the time of sale Sale value of machine Profit/(Loss) on sale Less: Tax@ 23% After tax cash salvage value $ 185,000 $ 185,000 $ 42,550 $ 142,450 -$1,867,100 $754,600 $754,600 $1,047,050 $82,198.95 Net cash flow Year 0 Net cash flow Year 1 Net cash flow Year 2 Net cash flow Year 3 NPV

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