Your firm is considering an expansion project that requires a fixed asset investment of $2.5 million and an initial investment in net working capital of $300,000. Net working capital will increase by 10% each year until it is recaptured at the end of the project. The fixed asset will be depreciated straight-line to zero over the 3-year project, but is estimated to have a market value of $210,000 at the end of year 3. The firm’s tax rate is 21%. Expected operating cash flows for the 3-year life of the project are: $1,150,000 at the end of the first year, $1,175,500 at the end of the second year, and $985,500 at the end of the third year. What is the project NPV at a 12% required return?
Your firm is considering an expansion project that requires a fixed asset investment of $2.5 million and an initial investment in net working capital of $300,000. Net working capital will increase by 10% each year until it is recaptured at the end of the project. The fixed asset will be depreciated straight-line to zero over the 3-year project, but is estimated to have a market value of $210,000 at the end of year 3. The firm’s tax rate is 21%. Expected operating cash flows for the 3-year life of the project are: $1,150,000 at the end of the first year, $1,175,500 at the end of the second year, and $985,500 at the end of the third year. What is the project NPV at a 12% required return?
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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Your firm is considering an expansion project that requires a fixed asset investment of $2.5 million and an initial investment in net working capital of $300,000. Net working capital will increase by 10% each year until it is recaptured at the end of the project. The fixed asset will be depreciated straight-line to zero over the 3-year project, but is estimated to have a market value of $210,000 at the end of year 3. The firm’s tax rate is 21%. Expected operating cash flows for the 3-year life of the project are: $1,150,000 at the end of the first year, $1,175,500 at the end of the second year, and $985,500 at the end of the third year. What is the project NPV at a 12% required return?
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