Ch. 10 Practice

Ch. 10 Practice - What is the NPV? 3. Now suppose the...

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FIN 3100 Chapter 10 Practice Dr. Lucy Ackert 1. Poole’s Landscaping is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless. The project is estimated to generate $2,450,000 in annual sales, with costs of $1,180,000. The tax rate is 35 percent. What is the OCF for years 1, 2, and 3? 2. Suppose that Poole’s required return for the expansion project is 14 percent. What are the cash flows in years 0, 1, 2, and 3?
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Unformatted text preview: What is the NPV? 3. Now suppose the project requires an initial investment in net working capital of $250,000 and the fixed asset will have a market value $300,000 at the end of the project. What are the cash flows in years 0, 1, 2, and 3? What is the NPV? 4. Pooles management realizes they can use accelerated depreciation instead of straight-line. The fixed asset falls into the three-year MACRS class. Everything else is the same as in the previous problem. What are the cash flows in years 0, 1, 2, and 3? What is the NPV?...
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