Santander Company is considering a project that requires an investment of $700,000. The project is expected to generate an annual cash flow of $280,000 for six years. The cash flow would be received at the end of each year.
The asset is considered 5-year property for depreciation purposes and would be disposed of at the end of the sixth year, at which time it is expected to have no salvage value. The company plans to use MACRS.
Assume the cost of capital is 12 percent and the income tax rate is 40 percent.
Required:
a. Determine the net present value of the asset. (Round amounts to dollars.)
b. State your recommendation to the management of the company.

Question

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The Answer of Santander Company is considering a project that requires an investment of $700,000. The project is expected to generate an annual cash flow of $280,000 for six years. The cash flow would be received at the end of each year.
The asset is considered 5-year property for depreciation purposes and would be disposed of at the end of the sixth year, at which time it is expected to have no salvage value. The company plans to use MACRS.
Assume the cost of capital is 12 percent and the income tax rate is 40 percent.
Required:
a. Determine the net present value of the asset. (Round amounts to dollars.)
b. State your recommendation to the management of the company.

Santander Company Is Considering a Project That Requires an Investment