Question 3 - Homework 6 - Connect

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Fayetteville State University *

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Finance

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Apr 3, 2024

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eBook Hint Ask References 3 10/10 points awarded Scored Show correct answers Explanation Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation. Using the tax shield approach to calculating OCF (remember the approach is irrelevant; the final answer will be the same no matter which of the four methods you use), we get: OCF = (Sales Costs)(1 T C ) + T C (Depreciation) OCF = ($1,740,000 650,000)(1 .21) + .21($2,340,000/3) OCF = $1,024,900 Since we have the OCF, we can find the NPV as the initial cash outlay plus the PV of the OCFs, which are an annuity, so the NPV is: NPV = $2,340,000 + $1,024,900(PVIFA 11%,3 ) NPV = $164,563.21 Homework 6 Help Save & Exit Submit Saved Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.34 million. The fixed asset will be depreciated straight- line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,740,000 in annual sales, with costs of $650,000. The tax rate is 21 percent and the required return on the project is 11 percent. What is the project’s NPV? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $ 164,563.21 Prev of 6 Next 3
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