Phone Home,Inc.is considering a new 5-year expansion project that requires an initial fixed asset investment of $2.484 million.The fixed asset will be depreciated straight-line to zero over its 5-year tax life,after which time it will be worthless.The project is estimated to generate $2,208,000 in annual sales,with costs of $883,200.The tax rate is 32 percent and the required return on the project is 11 percent.What is the net present value for this project?
A)$1,432,155
B)$1,433,059
C)$1,434,098
D)$1,434,217
E)$1,435,008

Question

Quizplus · Accepted Answer

OCF = ($2,208,000 - $883,200)(1 - 0.32) + ($2,484,000/5)(0.32) = $1,059,840