A corporate expects to receive $37948.0 each year for 15 years if a particular project is...

Question:

A corporate expects to receive $37948.0 each year for 15 years if a particular project is undertaken. There will be an initial investment of $112005.0. The expenses associated with the project are expected to be $7317.0 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project's after-tax net present worth.

Net present value

The net present value or the net present worth determines by calculating the costs and benefits for each period of an investment. The net present value applies to a series of cash flows occurring at different times.

Answer and Explanation:

The project's after-tax net present worth = P.V of cash inflow- P.V of cash outflows

1) P.V. of cash outflows = $112,005.0

2) P.V. of cash inflows = Operating cash inflows x Cumulative P.V. factors for 15 years @18%

= 19,512.28 x 8.559

= 167,005.60

(note 1)- Calculation of Operating cash inflow

Particular Amount
Revenue 37,948.0
(-) Expenses 7,317.0
Gross income 30,631
(-)Depreciation($112005.0/15) 7,467
Earning before tax 23,164
(-) Tax 11,118.72
Earning after tax 12,045
(+) Depreciation 7,467
Operating cash inflow 19,512.28

The project's after-tax net present worth = 167,005.60-112,005

=$55,000.6

Conclusion: The project's after-tax net present worth = $55,000.6


Learn more about this topic:

Loading...
Cost of Capital: Flotation Cost, NPV & Internal Equity

from Corporate Finance: Help & Review

Chapter 3 / Lesson 18
1.6K

Related to this Question

Explore our homework questions and answers library