A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per year for two years (i.e., cash flows will occur at t= 1 and t= 2). The corporate tax rate is 21 percent. The assets will depreciate using the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45%); (t = 3: 15%); (t = 4: 7%). The company's tax situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12 percent. Assume that the asset can sell for book value at the end of the project. Calculate the NPV of the project (approximately). Multiple Choice $22,463 $19,315 $22,735 $5,721

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per
year for two years (i.e., cash flows will occur at t= 1 and t= 2). The corporate tax rate is 21 percent. The assets will
depreciate using the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45% ); (t = 3: 15%); ( t = 4: 7%). The company's tax
situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12 percent. Assume that the
asset can sell for book value at the end of the project. Calculate the NPV of the project (approximately).
Multiple Choice
$22,463
$19,315
$22,735
$5,721
Transcribed Image Text:A project requires an initial investment of $200,000 and expects to produce a cash flow before taxes of $120,000 per year for two years (i.e., cash flows will occur at t= 1 and t= 2). The corporate tax rate is 21 percent. The assets will depreciate using the MACRS 3-year schedule: (t = 1, 33%); (t = 2: 45% ); (t = 3: 15%); ( t = 4: 7%). The company's tax situation is such that it can use all applicable tax shields. The opportunity cost of capital is 12 percent. Assume that the asset can sell for book value at the end of the project. Calculate the NPV of the project (approximately). Multiple Choice $22,463 $19,315 $22,735 $5,721
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