Gateway Communications is considering a project with an initial fixed assets cost of $1.49 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $246,000. The project will not change sales but will reduce operating costs by $411,000 per year. The tax rate is 34 percent and the required return is 12.1 percent. The project will require $55,000 in net working capital, which will be recouped when the project ends. What is the project's NPV? Multiple Choice
$318,997
$306,728
$329,631
$271,403
$259,603
Answer is $271,403
Initial Investment = $1,490,000
Useful Life = 9 years
Annual Depreciation = Initial Investment / Useful Life
Annual Depreciation = $1,490,000 / 9
Annual Depreciation = $165,555.56
Initial Investment in NWC = $55,000
Salvage Value = $246,000
After-tax Salvage Value = $246,000 * (1 - 0.34)
After-tax Salvage Value = $162,360
Annual Operating Cash Flow = Pretax Cost Saving * (1 - tax) +
tax * Depreciation
Annual Operating Cash Flow = $411,000 * (1 - 0.34) + 0.34 *
$165,555.56
Annual Operating Cash Flow = $327,548.89
Required return = 12.10%
NPV = -$1,490,000 - $55,000 + $327,548.89 * PVIFA(12.10%, 9) +
$55,000 * PVIF(12.10%, 9) + $162,360 * PVIF(12.10%, 9)
NPV = -$1,545,000 + $327,548.89 * 5.30806 + $217,360 *
0.35773
NPV = $271,403
Gateway Communications is considering a project with an initial fixed assets cost of $1.49 million that...
Gateway Communications is considering a project with an initial fixed assets cost of $1.51 million that will be depreciated straight-line to a zero book value over the 9-year life of the project. At the end of the project the equipment will be sold for an estimated $244,000. The project will not change sales but will reduce operating costs by $407,000 per year. The tax rate is 35 percent and the required return is 11.9 percent. The project will require $54,000...
Gateway Communications is considering a project with an initial fixed assets cost of $1.63 million that will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $233,000. The project will not change sales but will reduce operating costs by $384,000 per year. The tax rate is 40 percent and the required return is 10.8 percent. The project will require $48,500...
Show all work and highlight final answer. DO NOT answer if you cannot answer them all. 12. The Lumber Yard is considering adding a new product line that is expected to increase annual sale:s by $238,000 and cash expenses by S that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax...
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $201,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $138,000, variable costs of $37,300, and fixed costs of $13,000. The project will also require net working capital of $3,600 that will be returned at the end of the project....
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $159,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $96,000, variable costs of $27,350, and fixed costs of $11,950. The project will also require net working capital of $2,550 that will be returned at the end of the project....
2 Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.998 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $155,400. The project requires an initial investment in net working capital of $222,000. The project is estimated to generate $1,776,000 in annual sales, with costs of $710,400. The tax rate is 34 percent and the...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $281,289 at the end of the project. The project is estimated to generate $2,102,812 in annual sales, with costs of $805,313. The project requires an initial investment in net working capital of $361,924. If the tax rate is...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $213,186 at the end of the project. The project is estimated to generate $2,105,355 in annual sales, with costs of $883,025. The project requires an initial investment in net working capital of $377,259. If the tax rate is...
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.76 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 $2,100,000 in annual sales, with costs of $795,000. The tax rate is 34 percent and the required return is 12 percent. What is the project's NPV? (Do not round intermediate calculations and round...
Quad Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.886 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $457,800. The project requires an initial investment in net working capital of $654,000. The project is estimated to generate $5,232,000 in annual sales, with costs of $2,092,800. The tax rate is 24 percent and the required return...