NPV of a Proposed Project With 3 Years Estimated Life
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
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