A project has an initial requirement of $310,000 for fixed assets and $62,000 for net working capital. The fixed assets will be depreciated using MACRS 3-Year Class. The project has an estimated salvage value of $160,000 and will be sold after 3 years. All of the net working capital will be recouped at the end of the project. The annual revenue and cost are $180,000 and 30,000 respectively. The discount rate is 18 percent. What is the project\'s net present value if the tax rate is 34 percent? $103,600 $14,140 $12,017 $20,904 $22,913 Solution Hence the NPV of the project is $22,913: Answer option E .

1. A project has an initial requirement of $310,000 for fixed assets and $62,000 for net working
capital. The fixed assets will be depreciated using MACRS 3-Year Class. The project has an
estimated salvage value of $160,000 and will be sold after 3 years. All of the net working capital
will be recouped at the end of the project. The annual revenue and cost are $180,000 and 30,000
respectively. The discount rate is 18 percent. What is the project's net present value if the tax
rate is 34 percent?
$103,600
$14,140
$12,017
$20,904
$22,913
Solution
Hence the NPV of the project is $22,913: Answer option E
Initial Invetsment -310000
Net working capital -62000
Revenue 180000
Cost 30000
Depiciation 103323
Profit Before Tax 46677
Tax at 34% 15870.18
Profit after atx 30806.82
Salavage value
Working capital
Add back depriciation 103323
Opertating cash flow -372000 134129.8

2. Discount factor 0.847458
Present Value -372000 113669.3
NPV 22913.31
Salvaage Value calculation
Salvage Value 160000
Current value of the machine -22971 3100000 minus total deprication in 3 years
Total taxable value 137029
Tax at 34% 46589.86
Total salavage value after tax 113410.1 160000 -46689.86