Calculation of project ocf

Reference no: EM1310866

Calculation of Project OCF and Project NPV and Project Cash Flow from Assets and Modified ACRS.

Calculating Project OCF

Phone Home, Inc., is considering a new three year expansion project that requires an initial fixed asset investment of $4.2 million. The fixed asset will be depreciation straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,100,000 in annual sales, with costs of $990,000. lf the tax rate is 35 percent, what is the OCF for this project?

1. Calculating Project NPV

In the previous problem, suppose the required return on the project is 12 Percent, what is the project's NPV?

2. Calculating Project Cash Flow from Assets

In the previous problem, suppose the required return on the project requires an initial investment in net working capital of $300,000, and the fixed asset will have a market value of $210,000 at the end of the project. What is the project's year 0 net cash flow? Year 1? Year 2? Year3? What is the new NPV?

3. NPV and Modified ACRS

In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the previous year 1 net cash flow now? Year 2? Year 3? What is the new NPV?

Reference no: EM1310866

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