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

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Finance

Cochran Inc. is considering a new three-year expansion projectthat requires an initial fixed asset investment of $1,950,000. 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 $2,145,000 in annual sales, whichcosts $1,205,000. If the tax rate is 35%, , OCF is$838,500.Calculate the NPV using the required return of 14% usingthe cash flows from the previous problem. And Do some sensitivityanalysis. Suppose the president lowered the tax rate to 30%.Calculate the NPV again using a 14% required return.

Answer & Explanation Solved by verified expert
3.7 Ratings (315 Votes)
Net present Value NPV calculationYeartInitialinvestmentDepreciation amount D Initial investment3AnnualsalesAnnualcostBeforetax cash inflow CFTaxableIncome CF depreciationIncometaxes Taxable Income 35Operating cash flow OCF taxable income    See Answer
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