Question

2. value: 2.00 points Problem 9-11 Calculating Project Cash Flow from Assets [LO 2] H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,220,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,190,000 in annual sales, with costs of $1,180,000. The project requires an initial investment in net working capital of $154,000, and the fixed asset will have a market value of $179,000 at the end of the project. Assume that the tax rate is 30 percent and the required return on the project is 13 percent. What are the net cash flows of the project each year? (A negative answer should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year Cash Flow What is the NPV of the project? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $

Answer 1

YEAR 0 1 annual sales $2,190,000.00 $1,180,000.00 $2,190,000.00 $1,180,000.00 $740,000.00 $270,000.00 $2,190,000.00 less: $1,180,000.00 $740,000.00 $270,000.00 costs less: $740,000.00 depreciation $270,000.00 $81,000.00 ЕВT less: $81,000.00 $189,000.00 $81,000.00 $189,000.00 $740,000.00 $929,000.00 tax @30% $189,000.00 EAT add: $740,000.00 $929,000.00 $740,000.00 $929,000.00 depreciation OCF initial investment: -$2,220,000 -$154,000 $125,300.00 plant working capital $154,000.00 $1,208,300.00 -$2,374,000.00 $929,000.00 $929,000.00 Cash flows 0.88496 pv @13% 1 0.78315 0.69305 -$2,374,000.00 $822,123.89 $727,543.27 $837,412.51 PRESENT VALUE $13,079.67 NPV Cash flows -$2,374,000.00 $929,000.00 $929,000.00 $1,208,300.00 $13,079.67 а. year 0 year 1 year 2 year 3 NPV b.