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?

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

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