Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.97 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $320,000 immediately. The additional net working capital will be recovered in full at the end of the projectâs life. The corporate tax rate is 35 percent. The required rate of return for Howell is 13 percent.
What is the NPV for this project? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
| Howell Petroleum is considering a new project that complements its existing business. The machine required for the project costs $3.97 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated down to zero over its four-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. Howell also needs to add net working capital of $320,000 immediately. The additional net working capital will be recovered in full at the end of the projectâs life. The corporate tax rate is 35 percent. The required rate of return for Howell is 13 percent. |
| What is the NPV for this project? (Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
Related questions
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,160,000. 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 $2,170,000 in annual sales, with costs of $1,160,000. The project requires an initial investment in net working capital of $152,000, and the fixed asset will have a market value of $177,000 at the end of the project. Assume that the tax rate is 40 percent and the required return on the project is 12 percent.
| Requirement 1: |
| What are the net cash flows of the project for the following years? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567).) |
| Year | Cash Flow |
| 0 | $ |
| 1 | |
| 2 | |
| 3 | |
| Requirement 2: |
| What is the NPV of the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).) |
| NPV | $ |
