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# Calculating NPV of a given investment proposal

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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of \$2.754 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate \$2,448,000 in annual sales, with costs of \$979,200. If the tax rate is 31 percent and the required return on the project is 9 percent, what is the NPV for this project?

#### Solution Preview

Please refer attached file for better clarity of table.

Initial Fixed investment=\$2,754,000
Useful life=3 years
Salvage value=0
Depreciation per year=(Initial investment-salvage value)/useful life=\$918,000

Cash Flows

Year End Initial investment Sales Costs ...

#### Solution Summary

Solution depicts the steps to calculate the NPV of given investment proposal.

\$2.19