A 6 year capital projcect, code name Jackal, costs $27,695 (year 0). It is expected to produce the following operating cash flows (revenues minus expenses)
Year Operating Cash Flows
1 $6,250
2 6,688
3 7,156
4 7,657
5 8,192
6 8,766
Project NPV (sale of existing Asset)
The Jackal project will be depreciated, straight line, over its 6 year life. The corporate tax rate is 34%, and the required rate of return on the project is 9%. The Jackal project will replace the existing Condor project that has a book value of $2,000. The Condor project will be sold for $3.500.
A. Calculate the initial investment (year 0) cash flows for this project.
B. What is the projects NPV?
C. If the Condor project had a book value of $4,000, how would that change the NPV of the Jackal project?
D. How would a reduction in the corporate tax rate to 26% change your answer in parts b and c?