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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?

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    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.