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

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Byers, Inc., is considering a new three-year expansion projectthat requires an initial fixed asset investment of $1,680,000. Thefixed asset will be depreciated straight-line to zero over itsthree-year tax life, after which time it will be worthless. Theproject is estimated to generate $1,950,000 in annual sales, withcosts of $1,060,000. The project requires an initial investment innet working capital of $150,000, and the fixed asset will have amarket value of $175,000 at the end of the project. Assume that thetax rate is 34 percent and the required return on the project is 14percent.
Requirement 1:
What are the net cash flows of the project for the followingyears? (Do not round intermediatecalculations. Negative amounts should be indicatedby a minus sign. Enter youranswers in dollars, not millions of dollars (e.g.,1,234,567).)
Year Cash Flow
0 $
1
2
3
Requirement 2:
What is the NPV of the project? (Do not roundintermediate calculations. Enter your answer indollars, not millions of dollars (e.g., 1,234,567).Round your answer to 2 decimal places (e.g.,32.16).)
  NPV $

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3.6 Ratings (399 Votes)

Requirement 1 Fixed investment 1680000 Working capital require 150000 Tax rate 34 Required rate of return 14 Initial cost Cost of fixed investment Working capital requirement 1680000 150000 1830000 Annual sale 1950000 See Answer

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Transcribed Image Text

Byers, Inc., is considering a new three-year expansion projectthat requires an initial fixed asset investment of $1,680,000. Thefixed asset will be depreciated straight-line to zero over itsthree-year tax life, after which time it will be worthless. Theproject is estimated to generate $1,950,000 in annual sales, withcosts of $1,060,000. The project requires an initial investment innet working capital of $150,000, and the fixed asset will have amarket value of $175,000 at the end of the project. Assume that thetax rate is 34 percent and the required return on the project is 14percent.Requirement 1:What are the net cash flows of the project for the followingyears? (Do not round intermediatecalculations. Negative amounts should be indicatedby a minus sign. Enter youranswers in dollars, not millions of dollars (e.g.,1,234,567).)YearCash Flow0$ 1 2 3 Requirement 2:What is the NPV of the project? (Do not roundintermediate calculations. Enter your answer indollars, not millions of dollars (e.g., 1,234,567).Round your answer to 2 decimal places (e.g.,32.16).) NPV$