After estimating a project’s NPV, the analyst is advised that the fixed capital outlay will be revised upward by $73200. The fixed capital outlay is depreciated straight-line over a 6-year life. The tax rate is 40 percent, and the required rate of return is 9 percent. No changes in cash operating revenues, cash operating expenses, or salvage value are expected. What is the effect on the project NPV?
=-Increase in fixed capital outlay+(Fixed capital outlay/project
life*tax rate)/required return*(1-1/(1+required return)^project
life)
=-73200+(73200/6*40%)/9%*(1-1/1.09^6)
=-51308.71728
After estimating a project’s NPV, the analyst is advised that the fixed capital outlay will be revised upward by $73200....
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