The machinery required for a three year project costs $20,000, belongs in a 15% CCA class, and will require a net working capital investment of $5,000 up-front. The project generates after-tax operating income of $11,501. The fixed assets will be sold for $2,000 at the end of the project. If the firm has a tax rate of 34% and a required return of 10%, what is the project NPV?

Question

Quizplus · Accepted Answer

The NPV of the project can be calculated by considering the initial outlay, the after-tax operating income, the tax shield from CCA, the salvage value, and the recovery of net working capital, all discounted back to present value at the required return rate. The correct answer involves accurately accounting for these elements and applying the tax rate and required return to find the present value of the project's cash flows.

The Machinery Required for a Three Year Project Costs $20,000