Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset...

80.2K

Verified Solution

Question

Finance

Summer Tyme, Inc., is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $4.158 million.The fixed asset will be depreciated straight-line to zero over its3-year tax life, after which time it will have a market value of$323,400. The project requires an initial investment in net workingcapital of $462,000. The project is estimated to generate$3,696,000 in annual sales, with costs of $1,478,400. The tax rateis 31 percent and the required return on the project is 16percent.
Required: (a) What is the project's year 0 net cash flow? (b)What is the project's year 1 net cash flow? (c) What is theproject's year 2 net cash flow? (d) What is the project's year 3net cash flow? (e) What is the NPV?

Answer & Explanation Solved by verified expert

3.7 Ratings (676 Votes)

Years Cash Flow Projects year 0 net cash flow 4620000 Projects year 1 net cash flow 1959804 Projects year 2 net cash flow 1959804 Projects year 3 net cash flow 2644950 Calculate of Annual Cash Flow Annual Sales 3696000 Less Costs 1478400 See Answer

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

Summer Tyme, Inc., is considering a new 3-year expansion projectthat requires an initial fixed asset investment of $4.158 million.The fixed asset will be depreciated straight-line to zero over its3-year tax life, after which time it will have a market value of$323,400. The project requires an initial investment in net workingcapital of $462,000. The project is estimated to generate$3,696,000 in annual sales, with costs of $1,478,400. The tax rateis 31 percent and the required return on the project is 16percent.Required: (a) What is the project's year 0 net cash flow? (b)What is the project's year 1 net cash flow? (c) What is theproject's year 2 net cash flow? (d) What is the project's year 3net cash flow? (e) What is the NPV?