Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. h. cochran, inc., is considering a new three-year

H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset...

Free

90.2K

Verified Solution

Question

Finance

H. Cochran, Inc., is considering a new three-year expansionproject that requires an initial fixed asset investment of$2,300,000. The fixed asset will be depreciated straight-line tozero over its three-year tax life, after which time it will beworthless. The project is estimated to generate $2,650,000 inannual sales, with costs of $1,670,000. Assume the tax rate is 22percent and the required return on the project is 12 percent. Whatis the project’s NPV? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)

Answer & Explanation Solved by verified expert
3.8 Ratings (395 Votes)

year 0 1 2 3
A initial investment (2,300,000.00)
operating cash flow
i sales 2,650,000.00 2,650,000.00 2,650,000.00
ii Expenses 1,670,000.00 1,670,000.00 1,670,000.00
iii depreciation      766,666.67      766,666.67      766,666.67
iv=i-ii-iii Profit before tax      213,333.33      213,333.33      213,333.33
v=iv*22% Tax@ 22%        46,933.33        46,933.33        46,933.33
vi=iv-v Profit after tax      166,400.00      166,400.00      166,400.00
B=vi+iii operating cash flow      933,066.67      933,066.67      933,066.67
C=A+B Net cash flow (2,300,000.00)      933,066.67      933,066.67      933,066.67
D PVIF @ 12%               1.0000              0.8929              0.7972              0.7118
E=C*D present value (2,300,000.00)      833,095.24      743,835.03      664,138.42 (58,931.30)
Therefore NPV =        (58,931.30)

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

H. Cochran, Inc., is considering a new three-year expansionproject that requires an initial fixed asset investment of$2,300,000. The fixed asset will be depreciated straight-line tozero over its three-year tax life, after which time it will beworthless. The project is estimated to generate $2,650,000 inannual sales, with costs of $1,670,000. Assume the tax rate is 22percent and the required return on the project is 12 percent. Whatis the project’s NPV? (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)

Other questions asked by students

Q

What are at least five ways that poxviruses use captured cellular genes to evade or disable...

Biology
Q

9. You are studying cuttlefish and you observe that females mate primarily with larger males. You...

Biology
Q

Derive the equation of motion for the system and obtain its transfer function of Controller for...

Electrical Engineering
Q

An individual is complaining of not being able to sleep properly Based solely on the...

Biology
Q

ABCD is a square frame made of four thin uniform rods each of mass m...

Physics
Q

Mortgages In a random sample of 18 months from January 2011 through December 2020 the...

Calculus
Q

1 Solve the triangle if possible Round answers to the nearest tenth Include a sketch...

Calculus
Q

a Find the slope of the tangent line to the parabola y x 3x at...

Calculus
Q

I just need 10,11 ...

Accounting
Q

Simon Company's year-end balance sheets follow. Current Yr At December 31 Assets Cash...

Accounting
Q

D Question 4 10 pts Assume that the 6 year annual spot rate is 11.58%...

Finance
Q

One year ago, Elizabeth and William Brown made several large-cap stock investments. They used no...

Finance