Phone Home,Inc.is considering a new 4-year expansion project that requires an initial fixed asset investment of $3 million.The fixed asset will be depreciated straight-line to zero over its 4-year tax life,after which time it will have a market value of $225,000.The project requires an initial investment in net working capital of $330,000,all of which will be recovered at the end of the project.The project is estimated to generate $2,640,000 in annual sales,with costs of $1,056,000.The tax rate is 33 percent and the required return for the project is 15 percent.What is the net present value for this project?
A)$714,056
B)$681,409
C)$741,335
D)$742,208
E)$744,595

Question

Quizplus · Accepted Answer

OCF = ($2,640,000 - $1,056,000)(1 - 0.33) + ($3,000,000/4)(0.33) = $1,308,780