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Homework answers / question archive / UP Corp, is considering a new project and the related data are shown below

UP Corp, is considering a new project and the related data are shown below

Finance

UP Corp, is considering a new project and the related data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No change in net operating working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV? Do not round the intermediate calculations and round the final answer to the nearest whole number.

Risk-adjusted WACC

10.0%
Net investment cost (depreciable basis)

$65,000
Straight-line depr. rate

33.3333%
Sales revenues, each year

$71,000
Annual operating costs (excl. depr.)

$25,000
Tax rate

35.0%

Group of answer choices

$30,190

$28,215

$23,136

$25,958

$25,393

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Use NPV function in EXCEL to find the Net present value (NPV)

=NPV(rate,Year1 to year3 cashflows)-Year0 cashflow

=NPV(10%,Year1 to year3 cashflows)-65000=28215.5

Option II is correct

I have given formulas and the calculations to arrive at the Year wise cashflows. Please find it below.

WACC 10%        
  Year0 Year1 Year2 Year3 Remarks
Revenue   71000 71000 71000 Given
Annual operating costs   25000 25000 25000 Given
depreciation   21666.67 21666.67 21666.67 65000/3=21666.67
Operating income   24333 24333 24333 Revenue-annual operating costs-depreciation
taxes@35%   8517 8517 8517 33%*operating income
Operating income after taxes   15817 15817 15817 operating income-taxes
depreciation   21666.67 21666.67 21666.67 add back because it’s a non cash item
Operating cashflow -65000 37483 37483 37483 operating income after taxes+depreciation
           
Net Present Value 28215.5

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