LO2 9. Calculating Project OCF 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 will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2.23 million in annual sales, with costs of $1.25 million. If the tax rate is 23 percent, what is the OCF for this project? LO2 10. Calculating Project NPV In the previous problem, suppose the required return on the project is 14 percent. What is the project's NPV? LO2 11. Calculating Project Cash Flow from Assets In the previous problem, suppose 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. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? What is the new NPV? LO2 12. NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV? Answer 9. $2,230,000 $1,250,000 $716,666.67 $263,333.33 $60,566.67 $202,766.67 $716,666.67 $919,433.33 Annual Sales Annual Costs Depreciation (2150000/3) Net Operation Income Tax at 23% Net Operation Income after Tax Add: Depreciation Operating Cash Flow Answer 10. $2,150,000 $919,433.33 Less: Intial Investment Annual CF Discount rate 14% PV od OCF = 919433*(1.14^3-1)/(0.14*1.14^3)= 2134585.1 NPV ($15,415) Answer 11. $150,000 $185,000 Net Working Capital= Fixed Assets Market Value= Book value at the end of year 3= 0 Difference between Book Value and Market Value= $185,000-0= $185,000 Taxes Paid= 0.23($185,000)= $42,550 Net amount received on sale of fixed assets= $185,000-$42,550= $142,450 Year CF 1. 919433.33 2 919433.33 3 1211883.33 (919433.33+150,000+142,450)
LO2 9. Calculating Project OCF 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 will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2.23 million in annual sales, with costs of $1.25 million. If the tax rate is 23 percent, what is the OCF for this project? LO2 10. Calculating Project NPV In the previous problem, suppose the required return on the project is 14 percent. What is the project's NPV? LO2 11. Calculating Project Cash Flow from Assets In the previous problem, suppose 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. What is the project's Year O net cash flow? Year 1? Year 2? Year 3? What is the new NPV? LO2 12. NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV? Answer 9. $2,230,000 $1,250,000 $716,666.67 $263,333.33 $60,566.67 $202,766.67 $716,666.67 $919,433.33 Annual Sales Annual Costs Depreciation (2150000/3) Net Operation Income Tax at 23% Net Operation Income after Tax Add: Depreciation Operating Cash Flow Answer 10. $2,150,000 $919,433.33 Less: Intial Investment Annual CF Discount rate 14% PV od OCF = 919433*(1.14^3-1)/(0.14*1.14^3)= 2134585.1 NPV ($15,415) Answer 11. $150,000 $185,000 Net Working Capital= Fixed Assets Market Value= Book value at the end of year 3= 0 Difference between Book Value and Market Value= $185,000-0= $185,000 Taxes Paid= 0.23($185,000)= $42,550 Net amount received on sale of fixed assets= $185,000-$42,550= $142,450 Year CF 1. 919433.33 2 919433.33 3 1211883.33 (919433.33+150,000+142,450)
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
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
100%
Solve for 12&11
Calculating Project Cash Flow from Assets
Transcribed Image Text:117
118 LO2 9. Calculating Project OCF
119 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 will be depreciated straight-line to
120 zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2.23 million in annual sales, with costs of $1.25 million. If the tax rate is
121 23 percent, what is the OCF for this project?
122 LO2 10. Calculating Project NPV In the previous problem, suppose the required return on the project is 14 percent. What is the project's NPV?
123 LO2 11. Calculating Project Cash Flow from Assets
124 In the previous problem, suppose 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
125 the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV?
126 LO2 12. NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the
127 project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV?
128
129 Answer 9.
$2,230,000
$1,250,000
$716,666.67
$263,333.33
$60,566.67
$202,766.67
$716,666.67
$919,433.33
130
Annual Sales
131
Annual Costs
Depreciation (2150000/3)
Net Operation Income
132
133
134
Tax at 23%
Net Operation Income after Tax
Add: Depreciation
135
136
137
Operating Cash Flow
138 Answer 10.
139
Less: Intial Investment
$2,150,000
140
Annual CF
$919,433.33
141
Discount rate
14%
142
PV od OCF = 919433*(1.14^3-1)/(0.14*1.14^3)=
2134585.1
143
NPV
($15,415)
144 Answer 11.
Net Working Capital=
$150,000
$185,000
145
146
Fixed Assets Market Value=
147
Book value at the end of year 3= 0
148
Difference between Book Value and Market Value= $185,000-0=
$185,000
149
Taxes Paid= 0.23($185,000)= $42,550
150
Net amount received on sale of fixed assets= $185,000-$42,550=
$142,450
151
Year
CF
152
153
1
919433.33
919433.33
3 1211883.33 (919433.33+150,000+142,450)
154
2
155
156
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education