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?
Requirement 2:
What is the NPV of the project?

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4.1 Ratings (714 Votes)

a Projects Year 0 Year 1 Year 2 and Year 3 Cash Flow Years Cash Flow Year 0 1830000 Year 1 777800 Year 2 777800 Year 3 1043300 Calculate of Annual Cash Flow Annual Sales 1950000 Less Costs 1060000 Less See Answer

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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?Requirement 2:What is the NPV of the project?