Problem:
Phone Home, Inc. is considering a new 5-year expansion project that requires an initial fixed asset investment of $2.48 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worth $500,000. The project is estimated to generate $1 million in annual OCF. The initial NWC requirement is 300,000. The tax rate is 32 percent and the required return on the project is 11 percent.
Required:
Question: What is the net present value for this project?
- $1,390,658
- $1,295,706
- $6,500,098
- $1,434,217
- $1,117,670
Note: Be sure to show how you arrived at your answer.