Cash flows and NPV problem?
PLEASE help!! I got the other 10 quiz problems correct, but I cant get this one, and my final grade is riding on it.
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.31 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 $2,220,000 in annual sales, with costs of $1,210,000. The project requires an initial investment in net working capital of $157,000, and the fixed asset will have a market value of $182,000 at the end of the project. Assume that the tax rate is 30 percent and the required return on the project is 11 percent.
What are the net cash flows of the project for the following years? (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567).)
Year Cash Flow
What is the NPV of the project? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)
- Don GLv 78 years ago
Cash Flow by Year:
Yr 0 - Fixed asset invmt 2.31 mil + working capital 157,000 = Neg 2,467,000
Yr 1 - Net sales 2.220 less costs 1.210 = 1.010 less 30% tax = 707,000 net after tax plus tax saving on annual depreciation 231,000 (2.31 / 3 x 30%) = 938,000
Yr 2 - Same as YR 1 = 938,000
Yr 3 - 938,000 + gain on sale of fixed asset, after tax of 127,400 (182,000 x 70%) + return of working capital of 157,000 = 1,222,400
NPV = 33,155, as shown below.
Yr 0 - (2,467,000)
Discounted Cash flow, at 11% - YR 1 = 845,045; Yr 2 = 761,302; Yr 3 = 893,808.