Phone Home, Inc. is considering a new 4-year expansion project that requires an initial fixed asset...

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Phone Home, Inc. is considering a new 4-year expansion projectthat requires an initial fixed asset investment of $3 million. Thefixed asset will be depreciated straightline to a zero book valueover its 4-year tax life. The firm expects to be able to sell theseassets for $231,000 at the end of the project. It is expected thatthis project will generate new sales of $2,640,000. The firm isalso expecting to lose sales of approximately $420,000 each yearfrom a competing product during the life of this project. Theproject requires an initial investment in net working capital of$330,000, all of which will be recovered at the end of the project.The firm’s average tax rate is 32% and the marginal tax rate is35%. The required return for this project is 15%. What is the netpresent value of this project? Should the project be accepted? Whyor why not?

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Calculating Initial investment in year 0 Initial Fixed asset investment 3 million 3000000 Initial investment in working capital 330000 Initial investment in year 0 Initial fixed asset investment Investment in working capital 3000000 330000 3330000 Calculating After tax operating cash flows Annual depreciation Initial fixed asset See Answer

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Phone Home, Inc. is considering a new 4-year expansion projectthat requires an initial fixed asset investment of $3 million. Thefixed asset will be depreciated straightline to a zero book valueover its 4-year tax life. The firm expects to be able to sell theseassets for $231,000 at the end of the project. It is expected thatthis project will generate new sales of $2,640,000. The firm isalso expecting to lose sales of approximately $420,000 each yearfrom a competing product during the life of this project. Theproject requires an initial investment in net working capital of$330,000, all of which will be recovered at the end of the project.The firm’s average tax rate is 32% and the marginal tax rate is35%. The required return for this project is 15%. What is the netpresent value of this project? Should the project be accepted? Whyor why not?