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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

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    https://brainmass.com/business/net-present-value/npv-of-a-proposed-project-with-3-years-estimated-life-31187

    Solution Preview

    Answer: e

    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.

    $2.19

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