SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. The tax rate is 35%. The discount rate is 12%. What is the OCF each year for this project? Assuming the required return on this project is 12%, what is the project's NPV? What is the project's IRR? Should you accept or reject this project?
SummerTyme Inc is considering a new three year expansion project that requires an initial fixed asset investment of $3.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. The tax rate is 35%. The discount rate is 12%. What is the OCF each year for this project? Assuming the required return on this project is 12%, what is the project's NPV? What is the project's IRR? Should you accept or reject this project?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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