Info

545,270

Total cash flow

-$2,400,000

$1,789,732

$2,183,082

$2,153,332

$4,177,352

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

© The McGraw-Hill Companies, 2002

PART FOUR Capital Budgeting

With these cash flows, the NPV at 28 percent is:

NPV = -$2,400,000 + 1,789,732/1.28 + 2,183,082/1.282 + 2,153,332/1.283 + 4,177,352/1.284 = $2,913,649

So this project appears quite profitable.

First, we can calculate the project's EBIT, its tax bill, and its net income.

EBIT = Sales - Costs - Depreciation = $1,650 - 990 - 100 = $560 Taxes = $560 X .35 = $196 Net income = $560 - 196 = $364

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