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    Calculating NPV of the given expansion project

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    Down Under Boomerang , Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of ZAR 2.7 million. The fixed asset will be depreciated straight-line to zero over its three year tax life, after which it will be worthless. The project is estimated to generate ZAR 2,400,000 in annual sales, with costs of ZAR 960,000. The tax rate is 35 percent and the required return is 15 percent. What is the project's NPV?

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    Solution Preview

    Please refer attached file for better clarity of tables.


    Initial Investment=ZAR 2,700,000
    Salvage Life=0
    Expected Life= 3 years

    Depreciation=(Initial Cost-Salvage Value)/Use ful life
    Depreciation per year= ZAR 900,000
    Annual Sales=ZAR 2,400,000
    Annual Costs= ZAR ...

    Solution Summary

    Solution describes the steps to calculate NPV of the given expansion project.