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# NPV of a Proposed Project With 3 Years Estimated Life

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Given the following information, calculate the NPV of a proposed project: Cost = \$4,000; estimated life = 3 years; initial decrease in accounts receivable = \$1,000, which must be restored at the end of the project's life; estimated salvage value = \$1,000; earnings before taxes and depreciation = \$2,000 per year; method of depreciation = MACRS; tax rate = 40 percent; and cost of capital = 18 percent.

a. \$1,137
b. -\$ 151
c. \$ 137
d. \$ 804
e. \$ 544

#### Solution Preview

Depreciation cash flows:

MACRS
Depreciation Depreciable Annual
Year Rates Basis Depreciation
1 0.33 \$4,000 \$1,320
2 0.45 4,000 1,800
3 0.15 4,000 600
4 0.07 4,000 280
...

#### Solution Summary

This solution provides step-by-step calculations and answers for determining the NPV.

\$2.49