The Market Place is considering a new four-year expansion project that requires an initial fixed asset investment of $1.67 million. The fixed asset will be depreciated straight-line to zero over its four-year tax life, after which time it will have a market value of $435,000. No bonus depreciation will be taken. The project requires an initial investment in net working capital of $198,000, all of which will be recovered at the end of the project. The project is estimated to generate $1,850,000 in annual sales, with costs of $1,038,000. The tax rate is 21 percent and the required return for the project is 16.4 percent. What is the net present value?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by determining the present value of cash flows over the project's life, including initial investment, operating cash flows, and terminal cash flows. The correct NPV calculation, considering the given cash flows, tax rate, and discount rate, results in $451,180.73.

The Market Place Is Considering a New Four-Year Expansion Project